For countries in Asia that are dependent on remittances, the recent political unrest in Bangladesh has highlighted how citizens overseas are choosing to use the payments they are sending back home to register their protest against the government.
The protests in Bangladesh, which began in early July as student protests, culminated in the resignation of Prime Minister Sheikh Hasina at the beginning of August. Civil unrest among citizens extended to those living overseas, as the amount of remittances sent during the period dropped.
Figures from the central bank, Bangladesh Bank, show remittances to the country stood at $1.9bn in July, a decline of $64mn year on year. The figure was also down on the $2.5bn sent during June 2024. Remittance inflow for the fiscal year 2023-2024 was $23.9bn.
The intermittent internet access during the period was one reason suggested for the reduced flows. However, Asad Islam, professor in the department of economics at Monash Business School, says there are other reasons. For instance, many expatriates delayed or refrained from sending money to Bangladesh due to concerns about the stability and security in the banking system.
But many chose to withhold the funds as a form of protest. “A vast majority of the expatriates supported the student movement, protested against the government’s undemocratic practices and atrocities, and there were also campaigns against sending remittances to Bangladesh because of the government’s actions,” Islam adds.
Illegal channels
While it looks as if remittances have fallen, in reality they have, in many cases, reverted to illegal channels, according to experts. On a large scale and over a long term, this could have significant ramifications of a country’s economy.
Some countries in Asia are hugely dependent on remittances for economic support. According to figures from the Global Knowledge Partnership on Migration and Development Migration and Development Brief 40 report, published in June 2024, remittances accounted for 41 per cent of Tonga’s GDP, 28 per cent of Samoa’s, and 26 per cent of Nepal’s.
Dilip Ratha, lead economist, migration and remittances adviser to the vice-president of operations at the Multilateral Investment Guarantee Agency of the World Bank, points to countries including Haiti, Afghanistan and Somalia, where there is no official remittance data, but which he believes may account for up to 50 per cent of the country’s GDP.
Ratha says the IMF’s data for Afghanistan after the Taliban takeover in 2021 illustrates the changes in finance flows from legitimate to illegal channels. The flow of foreign direct investment, bank lending, portfolio debt and portfolio equity have all fallen to negligible levels. While remittances were estimated at around $790mn, it has now fallen and plateaued at around $300mn. “When there is a crisis, the size of remittances has to increase, to make up for the other sources falling off. But what you see [is] the data is not increasing. Rather than sending money formally, and risking the Taliban obtaining it, the flows are going underground instead,” says Ratha.
He adds this could have been exacerbated by companies and correspondent banks withdrawing from Afghanistan, pushing people into using underground channels to remit funds.
In Sri Lanka, remittances were around $7.1bn in 2020, before declining and reaching around $3.8bn in 2022, coinciding with the widespread government protests. However, remittances have increased again to close to $6bn.
Ratha says that systems such as hawala and hundi payments methods are used. Under these systems, funds are passed between individuals via brokers in the country of the sender and the country of the recipient, but the funds do not cross borders. While a popular option, they are illegal.
Inherent risk
Islam says using these channels come with their own risk, as they are less secure and could result in losses for both the sender and the recipient. “Moreover, the use of informal channels deprives the country of much-needed foreign currency reserves and hampers efforts to regulate and monitor financial flows effectively,” he adds.
Reducing access to remittances can have a broader impact on the economy. Islam points to Bangladesh’s foreign exchange reserves falling below $20bn, which could impact liquidity in the banking system and financing imports.
“A long-term reduction in remittances would have severe consequences for both the banking sector and the broader economy. For the banks, it would mean a decrease in foreign currency reserves, leading to liquidity issues and a potential inability to meet international obligations. This could undermine confidence in the banking system and result in a credit crunch. Additionally, the balance of payments would be adversely affected, potentially causing a depreciation of the Bangladeshi Taka, higher inflation, and increased external debt,” says Islam.
“Moving to informal channels means foreign exchange will not come, which will hit the government, industries and exports,” Ratha adds. “This has a multiplier effect, and the issue will spiral the longer the issue continues. Governments could be tempted to tax remittances to find another funding flow, but this could push even more funds through illegal channels.”