Time Series Forecast of Remittance in Bangladesh

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Forecast of Remittance in Bangladesh
A Time Series Forecast
8/11/2012 North South University

Prepared by: Athena Rahmetullah Leonora Adhikari Nudrat Faria Shreya Sumaita Maisha Tajkia Mahmud

I.

INTRODUCTION

Remittances are funds transferred from migrants to their home country. They are the private savings of workers and families that are spent in the home country for food, clothing and other expenditures, and which drive the home economy. Remittance inflows in the economy of Bangladesh are getting larger every passing year, matching with the increasing external demand for its manpower. Remittances have helped improve the social and economic indicators like nutrition, living condition and housing, education, health care, poverty reduction, social security, and investment activities of the recipient households. The relative weight of remittances has also increased against most of the macroeconomic variables alongside the contribution to GDP. Moreover, Bangladesh has been able to avoid any serious imbalances in balance of payments current account, although it has persistent merchandize trade deficits. Not only that, the export tradable sector has thus far remained unaffected from the Dutch Disease effects of remittances. (Dutch Disease effect of remittances is the appreciation of home currency due to increase in remittances.) Remittance inflows in recent years have been instrumental in maintaining the current account surplus despite widening a trade deficit.

II.

BACKGROUND

The key determinants of changes in the level of remittance inflow are number of workers finding employment abroad every year, oil price, exchange rate and GDP growth. An increase in number of migrant workers and oil prices results in an increase in remittance, while depreciation of exchange rate increases remittance. Each additional migrant worker brings in $816 in remittances annually. Every dollar increase in oil price increases annual remittance by nearly $15 million. Depreciation of exchange rate by one taka increases annual remittance by $18 million. Also it is seen that remittance are higher during periods of low economic growth. When a country experiences low economic growth, migration of workers to other countries increases which results in higher levels of remittance being sent to the home country.

The graph above is the time plot of remittance in Bangladesh since June 2003 till April 2012 and the following aspects csn be seen. In Bangladesh, between the years 2003 and 2008, remittance earnings were below $10 billion. The inflow crossed the double-digit mark in 2009, buoyed by a record outflow of migrants during 2007 and 2008 in the wake of a construction boom in the Gulf states. After 2008, the outflow of new migrants slumped due to a slowdown in demand. But it rose again last year, enabling Bangladesh to emerge as the eighth largest remittance earning country, according to a World Bank survey. Remittance inflows hit a decade high of $12.17 billion last year; it grew 10 percent in 2011 from the previous year. According to data from Bangladesh Bank, remittances rose 26 percent to $1.14 billion in December, compared to the previous month. It is seen that an increase in the outflow of workers and the depreciation of the taka have bolstered the inflow. A migrant worker now gets Tk 82 for a US dollar, up from Tk 70 a year ago. The latest growth in remittances comes as more workers are joining the bandwagon of more than 7.6 million Bangladeshi migrants, 80 percent of whom working in the oil-rich

Middle East. Key Middle East countries need more foreign workers now as they are taking more development projects, inspired by high oil prices. The growth in remittances, the second biggest foreign currency earning sector after exports, gives a much needed cushion to the government to face a rising pressure on the country's balance of payments (BoP). The flow of remittance from most of the Middle Eastern counties has seen a...
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