Global Financial Crisis and its Impact on Remittance of Banglades

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Md. Ruhul Amin*

Abstract:This paper evaluates the impact of worldwide recession and its effect on developed economics taking Bangladesh as an example. Due on global economical downturn, least developed economics have suffered a number of adverse effects of which one was the decline in inflow of foreign currency. This study, based on evaluations of secondary data, found that inflow of remittance has remained stable in Bangladesh. However if the recession of America, Spain, Greece, Ireland, France, Italy, Netherland continues, the crisis of the world economy would be discernable by the end of 2020. The paper ends exploring the steps to tackle the situation as well as providing guidelines for exporting skilled labor force.

Key words: Remittance, Hundi, Lay-off, Western-Union



The Global Financial Crisis, which has taken the world economy into stormy seas, took its roots in 2000, but the underlying causes could be traced back to the 1990’s. In the mid 1990’s, Americans lost their confidence in the stock market, and after the Tech Bubble, they invested in the more secure investment market- the housing sector. Hence, investments in the housing sector saw a steady increase in the price level of Housing. Anticipating greater profitability and security, investors around the world started to invest in US housing market, resulting in the Housing Bubble.

In the year 2000, a different scenario arose. The stock market declined that year and the Federal Reserve lowered interest rates. As interest rates fell, mortgage payments became cheaper and asset price rose higher and higher. Lower interest rates encouraged borrowing by banks and investors alike as credit was easily available and there existed inadequate regulations relating to lending standards. Wild lending practices in the US rose sharply despite a significant rise in default rates of mortgage debts. The sub prime lending practices (indiscriminate lending to borrowers with poor repayment habits and insufficient collateral and greater risk of default) carried out in the US was one of the major factors working behind the crisis blossoming in July 2007.

When banks and other financial institutions lent money to the borrowers, they disregarded and overlooked associated risk inherent with unregulated collateralized debt obligation and credit default swap markets. Financial analysts prepared erroneous forecasts regarding the risk and return associated with mortgage backed securities. Mortgage frauds also occurred, and there was an overall trend of making quick easy profit. Major financial instructions like Freddie Mac and Fannie Mae also encouraged sub-prime lending practices.

* Assistant Professor, Department of Business Administration, Dhaka International University, Dhaka, Bangladesh.

Correspondence to: Email:




In mid 2007, sub prime losses stated to occur, default rates increased rapidly on low quality mortgages, and consequently investors lost their confidence in the value of mortgage backed securities in the US Subsequently, a sharp decline in asset and housing prices incurred losses for those banks and institutions which had borrowed and lent and had invested in the mortgage based securities market. Mortgage based investments went bad and the losses began to mount throughout the year and the crisis dug its roots deeper in September 2008. Incidences foreclosure increased at an alarming rate and the nation’s largest banks and insurance companies were either bankrupt or seized by the Government. Stimulus packages and incentive were at once devised the government in an effort to save and stabilize the economy. Losses in the housing and investment sector also rapidly spread to other parts of US economy.

Thus began a period of economic slowdown in the US. As financial institutions in the US had forwarded their bad mortgages to foreign banks, the crisis also spread worldwide. The failure of stock market in the US resulted in a sharp decline of the stock indices of markets throughout the world. The crisis spread to Europe and all other developing economies and finally hit the emerging economies and developing countries.

Ireland – February 2011 – After a high deficit in the government budget in 2010 and the uncertainty surrounding the proposed bailout from the International Monetary Fund, the 30th Dáil (parliament) collapsed the following year. Portugal – March 2011 – Following the failure of parliament to adopt the government austerity measures, PM José Sócrates and his government resigned, bringing about early elections in June 2011. Finland – April 2011 – The approach to the Portuguese bailout and the EFSF dominated the April 2011 election debate and formation of the subsequent government. Spain – July 2011 – Following the failure of the Spanish government to handle the economic situation, PM José Luis Rodríguez Zapatero announced early elections in November. ” Slovenia – September 2011 – Following the failure of June referendums on measures to combat the economic crisis and the departure of coalition partners, the Borut Pahor government lost a motion of confidence and December 2011 early elections were set, following which Janez Janša became PM. After a year of rigorous saving measures, and also due to continuous opening of ideological question, the centre-right government of Janez Janša was ousted on 27 February 2013 by nomination of Alenka Bratušek as the PM-designated of a new centre-left coalition government.[487] Slovakia – October 2011 – In return for the approval of the EFSF by her coalition partners, PM Iveta Radičová had to concede early elections in March 2012, following which Robert Fico became PM. Italy – November 2011 – Following market pressure on government bond prices in response to concerns about levels of debt, the right-wing cabinet, of the long-time Prime Minister Silvio Berlusconi, lost its majority: Berlusconi resigned on 12 November and four days later was replaced by the technocratic government of Mario Monti. Greece – November 2011 – After intense criticism from within his own party, the opposition and other EU governments, for his proposal to hold a referendum on the austerity and bailout measures, PM George Papandreou of the PASOK party announced his resignation in favour of a national unity government between three parties, of which only two currently remain in the coalition over 40 years, collapsed in votes as a punishment for their support to the strict measures propose. Netherlands – April 2012 – After talks between the VVD, CDA and PVV over a new austerity package of about 14 billion euros failed, the Rutte cabinet collapsed. Early elections were called for 12 September 2012. To prevent fines from the EU – a new budget was demanded by 30 April – five different parties called the kunduz coalition forged together an emergency budget for 2013 in just two days. France – May 2012 – The French presidential election, 2012 became the first time since 1981 that an incumbent failed to gain a second term, when Nicolas Sarkozy lost to François Hollande.

The impacts of recession thus created were reflected in the:

  • devaluation of currencies and assets (as seen in the fall of house prices in US)
  • decline in international trade and production.
  • Political instability in some places of the world.
  • decrease in foreign aid and remittance.
  • rise in inflation level.
  • fall in stock indices worldwide.
  • increased level of unemployment throughout the world.
  • fall in investments and decline in commencement of new projects
  • stringent credit conditions
  • slowdown in GDP growth.

Objective of the Study

On the basis of the discussion, this paper will explore the impact of the economical crisis on a specific sector of Bangladesh economy that is, the foreign currency remittance inflow.

Methodology of the study

Based on the nature of the study the researcher in this study has used econdary secondary data. The information gathered helped to develop the findings, implication, and recommendation for tackling and improving the foreign currency remittance in Bangladesh.

Remittance; Bangladesh perspective

Statistically it is seen that the amount of remittance earned by a country is inversely related to the strength of the economy of that country in consideration. For a developing country like Bangladesh, remittance plays a vital role in ensuring a healthy growth of GDP. Inward remittance is important for the economy of Bangladesh as it generates employment, facilitates accumulation of capital and promotes investment (Barua, Majumder, Akhtaruzzaman 2007). Remittance is also important for the people during times of crisis. Typical example can be shown as in the case of Bangladesh. Both in the case of cyclone “Sidr’ and ‘Aila, it was the money sent from aboard by remittance earners that played a major role in helping their families to face the crisis boldly and get back up on their feet again1.

Remittance usage

In a developing country like Bangladesh, remittance is mostly consumed by needy people. It is seen that a family member- a father or son has gone aboard to work and his earnings alone supports his entire family with food, healthcare and education not only for his wife and children, but also for his parents and any other person who may be dependent on him. He also uses part of the remittance funds to pay off his migration cost (De Bruyn, 2006). Some of it goes for investment and some are saved to meet contingencies. Often remittance is also utilized for social development projects. In the rural areas, many Mosques and Madrasah are often built with the monetary aid sent by expatriate worker. Remittance hence not only contributes to the economy but also to the better livelihood of needy people2. Remittance has resolved foreign exchange constraints (Siddique, 2004), increased foreign currency reserves, decreased dependency on foreign aids, improved balance of payments increased dependence on the global economy, and also has helped increase supplied of national savings, boosted up GDP and acts as a stable form of external finance which increases during crisis.

Remittance Transfer

The major challenge lies in ensuing that remittance is sent and collected through the proper channels. There are two ways in which remittance is collected in Bangladesh: The Formal and the informal route. Formal routes of remittance transfer are postal services, credit unions, demand drafts issued by banks (Siddique, 2004) traveler’s cheques, wire-transfer services etc. According to World Bank, the average cost of remittance transfer is about 13%. Remittance transfer may also take place through direct transfer of funds from a foreign account belonging to the expatriate worker to an account in his home country3. The informal routes include the widely practiced Hundi system (Rahman, yeoh, 2006) carrying money on person when the worker returns home or sending cash or cheques using the postal service. The brokers of the Hundi system act as private remittance service providers.

The dismal scenario of remittance transfer lies in the fact that about 44% of remittance comes through Hindi process. This means that the statistics presented by Bangladesh Bank, World Bank and other bodies only take into account about 66% of the actual amount of remittance earned by the country, Hundi is popular mode of remittance transfer as it incurs only around half of the actual cost of transfer associated with the formal process. Also, through the Hundi process, official exchange rates can be overlooked, taxes can be avoided and it also saves time as it also saves time as the recipient of remittance does not have to go through all the hassle of complying with the complex government regulations associated with the formal route.

Bulk of the remittance is received from migrant workers residing in Saudi Arabia, UAE, Kuwait and from South East Asia. At present, Bangladesh has over 6 million expatriate workers working in Saudi Arabia, UAE, Kuwait, U.S.A, Libya, Qatar, Oman, Singapore, Germany, Bahrain, Iran, Japan, Malaysia, and other countries. Over the last 30 Years the country has seen a steady in remittance due to better understanding and formulation of favorable treaties between governments and also due to the increased demand of cheap labor in the world market. 60% of the remittance of Bangladesh is generated from Middle Eastern countries while less than one-third of remittance comes from USA and UK. UAE is the largest employer of the labor force from Bangladesh4.

Remittance inflow in Bangladesh

Since 2007 and onwards Bangladesh has retained its position as one of the top ten remittance receiving countries in the world. This year, despite the financial crisis squeezing up economies all over the world, the flow of remittance have not declined and was at a record all time high in May 9, earning 890.99 million US dollars (as shown Figure 1). Also remittance in April was 840.99 million US dollars in May. More than 800.000 Bangladeshi workers entered the job market worldwide in 2008 (as shown in figure 2).










Source: Constructed by the authors on the basis of data from Bureau of Manpower, Employment and training and foreign exchange policy department, Bangladesh Bank.







Figure 2: Number of persons left for abroad on employment during the period 1993-2008

Source: Constructed by the authors on the basis of data from Bureau of Manpower, Employment and training and foreign exchange policy department, Bangladesh Bank.

Remittance is about 9.5% of GDP in Bangladesh today. The estimated market size of remittance of Bangladesh was about 8.9 billion US dollars in 2008 (as shown in figure 3). This amount is expected to rise to 10 billion in 2009 if the present trend prevails. In the previous fiscal year, i.e from July-May’ 07, Bangladesh earned 8764.91 million US dollars showing a remittance growth of about 22.39% from 2007 to 2008. (Source: Monetary Policy Department and Foreign Exchange Policy Department, Bangladesh Bank).









Source: Constructed by the authors on the basis of data from Bureau of Manpower, Employment and Training and Foreign Exchange Policy department, Bangladesh Bank.


       Figure 4Trends of Remittance Inflow from July 2006 to May 2014

Source: Various Economic Trends, Bangladesh Bank

Trends of Remittance inflow in Bangladesh:

Figure 4 represents remittance inflow of Bangladesh, where 95 months from July 2006 to May 2014 shows a slight fluctuation trend in the entire period. However there is marked rise from the middle in graph, which continues to grow until May 2014 excepting a sharp fall happened in 2013.But the last period trend is downward.








Source: 17 July, 2014 The Daily Star

FY 2012-13   FY 2013-14


Figure 5 Remittance hit by poor outflow of Bangladeshi workers



Remittances hit by poor outflow of Bangladeshi workers


Remittances from the US rose 25 percent year-on-year to $2.32 billion in fiscal 2013-14, but it could not offset the declining flow of overall remittances mainly due to a fall in earnings from traditional Middle East countries.

For the first time in 13 years, Bangladesh experienced a decline in remittances in the just-concluded fiscal year, when the country received $ 14.23 billion, a fall by 1.6 percent from $14.46 billion a year ago, according to central bank data.

Remittances from Saudi Arabia, which has been the biggest market for Bangladeshi workers for years, fell 18.55 percent year-on-year to $3.12 billion in 2013-14.

Inward remittances were $2.86 billion from the United Arab Emirates, down by more than $ 144 million or 5.1 percent than a year ago. Remittances also declined by $80 million from Kuwait, another major destination for Bangladeshi workers.

Of the top-performing markets except the US, earnings from Malaysia grew 6.74 percent year-on-year to $1.06 billion.

“The poor outflow of manpower to the traditional destinations, such as Saudi Arabia, the UAE and Kuwait, is the main reason behind the decline in remittances,” said Khondaker Golam Moazzem, additional research director of Centre for Policy Dialogue.

The additional spending by seven lakh Bangladesh is to legalise their stay in Saudi Arabia might have led to the fall in remittance inflow from the country, he said.

Only 450,000 Bangladesh is managed oversees jobs in 2013, down by more than 33 percent from   680,000 in 2012, government data shows.

The situation has not improved so far as Saudi Arabia and the UAE have not been recruiting new Bangladeshi workers for more than two years. Kuwait almost stopped employing workers from Bangladesh long ago.

Overall remittances from eight Middle East countries stood at $8.4 billion in 2013-14, down from $9.16 billion in the previous year, while the combined inflow from other countries increased to $5.82 billion from $5.29 billion a year ago.

“The fall in remittances could affect the economy in future,” Moazzem said. “But the good thing is that inward remittances have been rising significantly from the US,” he said.


Finding: Recession and Remittance inflow

Despite bleak forecasts made by World Bank, International Monetary Fund, and Asian Development Bank, remittance inflow has remained at an all time high for the last few months. Remittance inflow has been high from Arab countries as they are much les affected by the global financial crisis compared with Europe and North America. It is true that since September 2008, the incidence of job lay offs have increased as work has dried up in the Middle Eastern Countries and southeast Asia, and many migrant workers are being forced to return home. Lack of funds and economic uncertainty has forced the developed countries to postpone or straightway abandon many existing investment projects, and as a result, expatriate workers all over the world are finding themselves jobless all on a sudden.

Luckily for Bangladesh, most migrant workers hold low skilled jobs coupled with a minimum wage earning, and for that reason, the number of workers being forced back home due to job lay-offs are not yet a great number. All in all, over the last few months since the emergence of the financial crisis, Bangladesh has earned stable remittance from Saudi Arabia, UK, USA, Kuwait, Libya, Qatar, Oman, Singapore and Germany. An increase in inflow of remittance has been seen from UAE and Malaysia, but a drop in remittance has been seen in the case of Bahrain where in April 09 the amount of remittance earned was Tk 71.92 crore compared to that of April 08, when it was Tk. 108.91 crore. A decline in remittance inflow from Japan has also been noticed (Source: Foreign Exchange Policy Department, Bangladesh Bank5.

Implications and Recommendations

It is anticipated that the actual effects of the Global Financial Crisis on remittance inflow may be seen somewhere around November 2009 in Bangladesh, Based on the findings, it might not be possible to keep remittance growth at the current level if world economy goes into further depression at the end of the year. Middle-Eastern economies are also likely to be affected adversely if recession continues in the USA and European Union countries. Further drop in oil prices in the long run shall close down ongoing projects there and investment will become narrower resulting in greater lay-offs. Also labor laws in some Middle East countries have changed to the detriment nature of foreign workers. Some countries have already decreased the issuance of visas for Bangladeshi workers. This has resulted in declination of skilled and semi-skilled worker export from Bangladesh. Therefore, based on the evaluation of the findings, to earn more remittance through the formal routes, some steps and policies have to be implemented, which are stated as below.

  • Ensuring effectiveness and efficiency of remittance transfer process.
  • Fostering patriotism in people through social awareness training and make them aware about the benefits of remittance transfer to the country through proper channels.
  • Exempting/lowering tax related to remittance transfer.
  • Facilitating transfer of remittance by opening branches of remittance transfer agencies in distant rural areas.
  • Revising and lowering remittance transfer charges if necessary transfer agencies.


Recent initiatives like the Western Union joining the postal service to deliver money will also play a major role in the facilitation of money transfer through the legal process.


In Budget 2009, the following were proposed

  • Rehabilitation and skill development program for the returnee expatriate workers who have lost their jobs.
  • Diplomatic intiative to prevent entrenchment works and to explore new labor markets aboard
  • Making National skill Development Council more effective to build skilled workforce. (Source: The daily Star, 12th June, 2009)

However, the efficient and effective implementation of the policies shall tell more of the story. Future job markets need to be explored for Bangladeshi workers in different countries. Not only that, jobs at home need to be created with Government patronization6.


On the basis of the current scenario, it is proposed that

  • Bangladesh should target specific countries like Western Europe. In recent times, workers of that country have migrated in large numbers to the US and UK. They are now lacking in workforce. We can use it to our advantage and send our workers there. We can also target Libya, Syria, and Iraq etc.
  • Expatriate workers face communication problems as most of the workers come from very poor class families and has knowledge of little or no English. It is hence recommended that before workers are sent aboard, they are to be trained properly and taught both English and to some extent, the language of the country they are being sent to. It has been noted that workers aboard often has to face harassments or frauds due to miscommunication of lack of understanding of the native language.
  • It is recommended that the Government creates a commission to protect the rights of the workers aboard. They are to be made aware of the basic rights they entitled to and the embassies aboard has to take initiatives to ensure that the basic rights of the workers are being protected and that they receive the wages that they are entitled to.
  • The safety and security of the expatriate workers also have to be ensued. Death due to mishaps at workplace is not uncommon and it has been noted that the number of deaths of migrant worker has increased at an alarming rate over the past one year. Although causes of death cannot yet be strongly correlated to working conditions. (Source: Ministry of Labor, Government of Bangladesh).



Recommendations, based on the findings, if implemented will enable the government of Bangladesh to deal with adverse economical conditions when remittance inflow will decrease. Policies will need to be implemented and proper formulation of the activities should be done to achieve the target as laid down in this paper. Hence, decrease in remittance will not have a major importance in least developed countries like Bangladesh.


  1. Barua S. Majumder A M and Akhtaruzzaman M. 2007 Determinants of Workers’ Remittance in Bangladesh: An Empirical Study : Research Economist Policy analysis Unit, Bangladesh Bank, Dhaka.
  2. De Bruy T 2006, Dynamics of Remittance Utilization in Bangladesh, BASUG 2006, Forum on Remittance and Expatriates: Development in Bangladesh.


  1. Siddiqi, T 2004, Efficiency of Migrant workers’ Remittance: The

Bangladesh case, Asian Development Bank, Manila

  1. Rahman M M and Yeoh S.A.B 2006. The social Organization of Remittances Channeling Remittances from East and Southeast.
  2. Bangladesh Bank, Various Economic Trends Major Economic Indicators: Monthly Update from July 2006 to May, 2014, Monetary Policy Department.
  3. The Daily Star, 12th June, 2009, Supplement: Budget 2009-2010 Speech.


  1. The Daily Star 17 July, 2014.



Further Reading:

  1. Portugal PM quits after losing austerity vote. Al Jazeera. 23 March 2011. Retrieved 27  March 2011.
  2. Fontevecchia, Agustino 23 March 2011. “Portuguese Parliament Rejects Austerity Plan, PM Socrates Resigns”. Forbes. Retrieved 24 May 2011.
  3. Eurokriisi kuumensi jälleen puoluejohtajien tenttiä in Finnish. Finnish Broadcasting Company. 13 April 2011. Retrieved 12 July 2011.
  4. Junkkari, Marko; Kaarto, Hanna; Rantanen, Miska; Sutinen, Teija 13 April 2011. Pääministeritentissä kiivailtiin taas eurotuista. Helsingin Sanomat in Finnish. Sanoma. Retrieved 12 July 2011.
  5. Minder, Raphael 20 November 2011. “Spanish Voters Deal a Blow to Socialists over the Economy”. The New York Times. Retrieved 25 February 2012.


  1. Ross, Emma 29 July 2011. “Spain’s embattled prime minister calls early elections”. USA Today. Retrieved 21 May 2012.
  2. Foto: Poslanci izrekli nezaupnico vladi Boruta Pahorja :: Prvi interaktivni multimedijskiportal, MMC RTV Slovenija”. 20 September 2011. Retrieved 23 October 2011.
  3. Dusan Stojanovic: Slovenia’s troubled government ousted”. Associated Press. 28 February 2013. Retrieved 17 August 2013.
  4. Moody, Barry 11 November 2011. Italy pushes through austerity, US applies pressure. Reuters. Retrieved 11 November 2011.
  5. Greece passes new austerity deal amid rioting. CBC News. 12 February 2012.  Retrieved 13 February 2012.
  6. Poll Feb2012″. 14 February 2012. Retrieved 14 February 2012.





Year and Month Million in USD Year and Month Million in USD Year and Month Million in USD
6-Jul 412.8 9-Jun 919.1 12-May 1156.82
6-Aug 471.22 9-Jul 885.38 12-Jun 1070.86
6-Sep 446 9-Aug 935.15 12-Jul 1201.15
6-Oct 377.34 9-Sep 887.57 12-Aug 1178.65
6-Nov 598.73 9-Oct 900.7 12-Sep 1178.83
6-Dec 555.08 9-Nov 1050.54 12-Oct 1453.69
7-Jan 462.55 9-Dec 873.86 12-Nov 1102.15
7-Feb 500.32 10-Jan 952.39 12-Dec 1287.31
7-Mar 537.29 10-Feb 827.96 13-Jan 1326.99
7-Apr 543.74 10-Mar 956.49 13-Feb 1163.18
7-May 557.02 10-Apr 922.16 13-Mar 1229.36
7-Jun 516.38 10-May 903.05 13-Apr 1194.4
7-Jul 567.11 10-Jun 892.15 13-May 1087.19
7-Aug 470.95 10-Jul 857.31 13-Jun 1058.25
7-Sep 590.67 10-Aug 963.92 13-Jul 1238.96
7-Oct 559.05 10-Sep 837.71 13-Aug 1005.77
7-Nov 617.39 10-Oct 923.85 13-Sep 1025.7
7-Dec 635.34 10-Nov 998.64 13-Oct 1230.68
8-Jan 710.74 10-Dec 969.1 13-Nov 1061.45
8-Feb 689.26 11-Jan 970.54 13-Dec 1210.21
8-Mar 808.72 11-Feb 986.97 14-Jan 1260.66
8-Apr 781.71 11-Mar 1102.98 14-Feb 1173.16
8-May 730.26 11-Apr 1001.97 14-Mar 1288.62
8-Jun 753.58 11-May 998.42 14-Apr 1230.57
8-Jul 820.71 11-Jun 1038.91 14-May 1215.83
8-Aug 721.92 11-Jul 1015.58
8-Sep 794.18 11-Aug 1101.79
8-Oct 648.51 11-Sep 855.44
8-Nov 761.38 11-Oct 1039.48
8-Dec 758.03 11-Nov 908.79
9-Jan 859 11-Dec 1147.22
9-Feb 784.47 12-Jan 1221.41
9-Mar 885.67 12-Feb 1133.01
9-Apr 840.99 12-Mar 1109.14
9-May 895.3 12-Apr 1083.89


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