Bangladeshi Government's Incentive on Incoming Remittances and Its Impact on End Users
The Bangladeshi government has introduced a 2.5% incentive to boost the inflow of remittances through legal channels. This initiative, effective since early 2022, is directed at Bangladeshi citizens living abroad, encouraging them to send money back home through formal routes. The incentive is credited to the recipients either as cash or into their bank accounts.
Key Aspects of the Incentive Program
- Eligibility and Process: To be eligible for the incentive, remittances must be sent through legal channels. For remittances up to BDT 500,000, no additional documentation is required. However, for amounts exceeding this threshold, beneficiaries need to submit documentation to avail of the incentive.
- Impact and Goals: This move aims to enhance the use of formal remittance services, thereby boosting the country's foreign currency reserves. In fiscal year 2020-2021, remittances saw a growth of 36.10%. The Finance Minister hopes that maintaining this incentive will continue to foster growth in remittance inflows.
- Rate Fixation and Regulation: The Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) have been involved in setting rates for remittances, exports, and imports since September 2022, indicating a coordinated effort to manage financial inflows and outflows.
Considering the End Users: Do They Lose Money?
While the 2.5% incentive is a positive step towards formalizing remittance flows, its effectiveness from an end-user perspective depends on various factors:
- Exchange Rate Variations: The parallel market for foreign exchange in Bangladesh might offer different rates than the official ones. If the parallel market rate is significantly higher, the overall return, even with the 2.5% incentive, might be less favourable.
- Additional Costs: Official channels may impose service fees and charges, potentially reducing the net amount received by beneficiaries.
- Incentive Effectiveness: The incentive aims to bridge the gap between parallel and official rates. However, if the disparity is greater than the incentive, end users might perceive a loss.
In summary, the 2.5% incentive by the Bangladeshi government is a strategic step to regulate and increase legal remittances. End users need to assess the benefits of this incentive against potential losses due to exchange rate differences and service charges. The decision to use official channels over the parallel market hinges on these factors, along with considerations of legality and security.