Economists divided over BB’s raising cash incentive plan on remittances

The country’s leading economists have expressed mixed views on the central bank's move to raise cash incentives on remittances.

Talking to Business Insider Bangladesh, some say that the move is useless and misuse of public funds while others say it will further encourage expatriate workers to remit through the legal channels.

Bangladesh Bank recently wrote to the finance ministry that it wants to increase by 1 percent to 3 percent cash incentives on remittances.

In the new fiscal year 2021-22, the government continued 2 percent cash incentives on remittances sent through legal channels, and ease of rules for the robust growth in remittances.

Reputed macroeconomist and former caretaker government finance adviser Dr AB Mirza Azizul Islam opposed the idea and said, “It is not necessary to provide more incentive to remitters because the country’s inward remittance growth is now excellent even amid the pandemic.”

“The government, sometimes, gives in to the lobby by the strong interest group. Something like this might happen this time.”

Former BB governor Dr Salehuddin Ahmed appreciated the move saying, “Our current account balance is still good just because of huge inward remittances.”

The government should take an initiative to popularise non-conventional export items by offering more incentives, he said.

Senior research fellow at Bangladesh Institution of Development Studies Dr Monzur Hossain termed the move a positive one.

“Bangladesh expatriates who are contributing to making the current account balance healthier by sending money should be treated like any other exporters who received incentives,” he said.

He said, “We know the government has provided a 5 to 20 percent incentive to the country's different types of export items.”

Former macroeconomic adviser to IMF Dr Reza Kibria said, “There is no use of providing any incentives to the expatriates. It is a total misuse of the public fund."

The government can provide different types of benefits rather than incentives like reducing bank fees on inward remittances, he also said.

Earlier, BB spokesman Sirajul Islam told Business Insider Bangladesh, “Bangladesh Bank wrote to the ministry seeking opinion on the enhancement of cash incentives on remittances.”

The ministry is expected to decide on the proposal after consultation with relevant government agencies, he said.

Inward remittance

The inward remittances hit a record of over $24.77 billion in FY21 amid the Covid-19 outbreaks and lockdowns.

The remittances sent by expatriates living in different countries in the last financial year marked a robust more than 36 percent year-on-year rise from $18.2 billion in FY20.

In FY21, some Tk 3,060 crore was set aside for providing cash incentives on the remittances. In the current financial year, the figure was increased by Tk 1,000 crore to over Tk 4,000 crore.