Use of Remittances and Savings by Overseas Contract Workers of Bangladesh

In view of the level of remittances flowing inlo the country out of the savings of nationals working abroad and their importance to the domestic economy, the present study looks into pattern of use of such remittances for various productive purposes.Productive use is seen here as having implication for the future flow of incomeactual or potential. Based on the experiences of 306 returned migrants from the Middle East it has been shown that about 50 percent of the uses of remittances by the respective households could be labelled as productive. The productive use of remittances would depend on the level of savings that a household can generate out of overseas remittances received over and above the costs incurred due to family expenses and the ability of a family to appreciate the potentials of and to utilise remittances for productive purposes as depending on the socio-economic dynamics of the society. A greater exploitation of the potentials of overseas remittances would require an active participation of the government in mobilising overseas remittances into productive ventures.


I. Introduction
Mahmood/ Use of Remittances and Savings 85 conditions of the respective households. 3 The exploitation of the potentials of overseas remittances would, however, depend on the state of public awareness about such latent potentials, and the use of the same for alternative purposes. That whilst accumulation of savings is the prime motive behind migration, the ultimate test of the success or failure of the process will lie at the capacity of the economy. and of the individual households, to make an optimal utilisation of the latent potentials of overseas remittances.
The purpose of the present exercise is to make a brief review of the level and patterns of use of remittances by individual migrant households. The end objective is to derive possible implications of the observed pattern of use of remittances for future planning. For the convenience of analysis, this paper is organised into three sections, besides the introduction and conclusion. Section II analyses the level and trends of remittances flowing into Bangladesh. Section III highlights some of the current patterns of use of remittances by the receiving houseolds. The possible role that the government can play in mobilising a greater flow of remittances into productive ventures is discussed in section IV.

II. Level of Remittances
Based on official statistics Bangladesh earned a total of Taka 146 billion as remittances from the nationals working abroad during 1977 to june 1989. This is equivalent to US $5.49 billion. Intertemporarily, the level of remittances flowing into the country increased quite rapidly. However, such a growth has not been all that steady. Remittances increased steadily until 1983 ; from an initial level of Tk. 866 million, as of 1977, the level of remittances increased to Tk. 15,684 million in 1983. The following year witnessed a significant downswing in the level of remittances which continued uptil 1985. The level of remittances took a sharp upturn beginning from 1988, and during the subsequent years they far exceeded the level of 1983. In 1988 overseas remittances 3.
For the various potentials of overseas remittances and the rationale for productive use of remittances, see Mahmood, RA., Implications of the International Movement of Labour for Trade and Development -with Particular Reference to Bangladesh. A doctoral dissertation on Economics, University of Sussex, May 1984. reached the level of Tk. 24 billion which was equivalent to US $737 million. This demonstrates that over a period of slightly more than a decade the level of overseas remittances flowing into Bangladesh increased by about 30 times (Table 1). · Remittances flowing into Bangladesh originate from two major regions of the world, e.g., Middle East, and Western Europe. This corresponds with the outflow of nationals overseas on employment. Both the absolute and relative shares of remittances originating from these two regions experienced significant changes over the years. The Western Countries accounted for more than three fourths of · the remittances which were flowing into Bangladesh in 1977. Their relative share fell to less than a fourth in recent years. For the Middle East the opposite has been the case. Among the Middle Eastern countries their relative shares of the total remittances from the region changed very much over time. The relative shares of Qatar and the UAE, for example, consistently decreased over the years. · For Oman, in contrast, it has heen increasing. The KSA and the UAE, however, have all along been maintaining the first and second positions respectively. The USA and the UK between them account for more than 95 percent of the remittances coming from the Western Countries.
The official statistics on remittances, as are shown in Table 1, are a gross underestimation of the actual flow of resources coming from the nationals working abroad. This is because. by definition, remittances include all those resources coming into the country out of the savings of nationals working abroad, and that, depending on the mode and channels of transfer, remittances can be in cash and kind, and may be coming either through the institutional or unofficial. channels. 4 However, the official 4. Depending on the forms they take, and the channels they f1ow through, remittances may be defined as, The superscripts 'm' and 'a' refer respectively to goods imported having been duly accounted for to the Customs Officials, and those brought home outside regular import channels. The latter includes accompanied and unaccompanied baggages of an incoming migrant, smuggled goods paid for out of overseas earnings of nationals abroad, etc.  19771981-1984-19881989(Up to June) 1977-1989   One should note further that the official estimates of remittances are derived by converting foreign exchange received from nationals working abroad via the official rate of exchange. For example, 1 US $ received as remittances is reported by the Bangladesh Bank as being equivalent to Tk. 34 (US$: Taka. say. being 1:34). However, from the migrant households, point of view they would have received Tk. 35 from the same foreign exchange converted at the WES rate. In terms of disposable income in the hands of the migrant households it is Tk. 35, not Tk. 34 as reported by the Bangladesh Bank. which it all should matter.
Given the low coverage of the official statistics on remittances one logical question would be : what is the maximum possible level of remittances that Bangladesh could have earned from the nationals working abroad. An answer to this question would give an idea of the level of underestimation porvided by the official statistics of the actual flow of remittances. If the maximum possible level of remittances that could be expected from the nationals working abroad at any point in time is called the 'Potential' level of remittances. a comparison of this with the official estimates of remittances will give some idea of the level of underestimation. Based on the assumption that remittances are a function of the level of savings of nationals working abroad, and given the fact that whatever the nationals save abroad is the maximum that the country can expect as remittances, an estimate of their aggregate level of savings abroad would provide the corresponding estimate of the potential level of remittances. The aggregate level of savings is a product of the average level of savings and the stock of nationals abroad at a given point in time. Despite various methodological limitations. an estimate of the potential remittances from Bangladeshis working in the UK and Middle East conforms that they are much higher than the remittances · reported by the official statistics. The level of remittances through the informal channels would be no less than 20 percent in the case of the UK and 10 percent in the case of Middle East. If this is accepted, the corresponding level of such informal transfers will amount to Tk. 1,457 million even as early as in 1985. Of this, Tk. 415 million would come from the UK and Tk. 1,042 million from the Middle East. 6 Noteworthy, the official statistics on remittances may contain earnings not necessarily originating from the nationals working abroad. To take advantage of the higher exchange premium offered to the earners of remittances, as well as to evade tax. incomes accruing to nationals abroad due to underinvoiced imports, overinvoiced imports, payments received by public servants from various international negotiations, may come into the country in the guise of overseas remittances. A proper adjustment of remittances for such non-remittances income will give a lower value of remittances based on official statistics ..
Despite the various limitations, based on available statistics, overseas remittances are now among the most important sources of foreign exchange to the country. As of 1987 /88, they are equivalent to about 56 percent of the export receipts ; one quarter of the import payments ; and 46 percent of the current account deficits. They are equivalent to 5 percent of the GDP. The relative importance of remittances becomes much more vivid if compared with the Annual Development Programme of the country. and development allocations for various sectors of the economy. Remittances were 3.5 times higher than the ADP allocation for industrial development during 1987 / 88 ; 9 times higher than the allocation for agriculture ; and 10 times higher than that for education and training.

Common Uses of Remittances
Based on the experiences of 306 returned migrants from the Middle East, 7 the most common and important uses of remittances have been found to be for the construction and development of houses, purchase of land, machinery and transport equipment, wedding and festivals. and education of children (Table 4). Two major uses of remittances, both in absolute and relative terms, are construction and development of houses and purchase of land. On an average Taka 1,02,000 is used for the purchase of land : and Taka 95,000 for the construction and development of houses. They account respectively for 15-25 percent and 19-00 percent of the remittances received by the sample households. About a fourth of the migrant families keep on an average Taka 125.000 in banks as fixed deposits equivalent to about a tenth of the remittances received by them. Table 5 shows that the level of remittances used for a particular item is positively related to the skill level of the migrants. 8 For most of the items listed in Table 4. the average level of remittances used by a professional and semi-professional is significantly higher than that used by the lower skill groups. There are, however. a few items on which a greater use of remittances is specific to a particular skill group. Average level of remittances 7 . This is due to a survey carried out during January-March 1985,· in four districts of Bangladesh. The basic objective of the survey was to ascertain the changes experienced by returned migrants from the Middle East in terms of their socio-economic status between pre-and post migration periods. In total 368 returned migrants were interviewed based on a pre-designed questionnaire, and they covered migrants from different skill categories, c.g., professionals and semi-professionals, skilled, semi-skilled and unskilled. used for repayment of loans, for instances, is the highest in the case of unskilled migrants : the semi-skilled though spent the most in relative terms. Both the average and relative uses of remittances towards wedding are also the highest in the case of unskilled migrants.   Mahmood (1986). ~ If the ownership of agricultural land prior to migration is taken as an index of one's pre-migration socio-economic status. as Table  6 shows, this will correspond well only with respect to the items on which remittances are mostly used. i.e .. land. house. etc: In the case of machinery and transport equipment. however. migrants owning very little land prior to migration spend proportionately more, i.e., 4.97 percent, as compared to l ·46 percent in the case of the highest land owning group. Moreover, the extreme land ownership groups spend a significant proportion of their remittances for the establishment of trade and business of some sort.

Productive Use qf Remittances
Any classification of the different uses of remittances into some economically meaningful groups, say. productive and nonproductive, is immensely difficult. This is because. whatever might seem productive from an individual's point of view may not be so from the national point of view and vice-versa. Purchase of land, for instance, will add to the productive assets of a migrant household and should, therefore, be termed as productive. However, from the national point of view purchase of land simply involves a transfer of ownership, and makes no additional contribution to the national economy: Similarly, expenditures on education would seem productive from the micro point of view but not from the macro. Despite such differences in the interpretation of the various uses of remittances, we have identified below a list of items which may be termed as being productive uses of remittances. Two definitions of productive uses. i.e .. denoted as defintions 1 and 2. are used here. 9 Average and relative uses of remittances under both the definitions are analysed with respect to the various socioeconomic characteristics of the migrant households. Table 7 shows that out of total remittances ofTaka 95.99 million received by the sample migrant households. about 49 percent are used for productive purposes under the definition 1. The average use of  Source; Computed from raw data generated by Mahmood (1986).
remittances for productive purposes is Taka 152,000. Under the second definition -which takes expenditures on education and medical treatment also as productive. the relative use of remittances for productive purposes rises to 53 percent of the total.
Looking through Table 7 one observes that both the average and relative uses of remittances for productive purposes correspond well with the various socio-economic characteristics of the migrants. The highest absolute and relative uses of remittances for porductive purposes are due to the professionals and semi-professionals. As high as 68 percent of their remittances are used for productive purposes. For the unskilled migrants the corresponding figure is 4 7 percent. Excepting for the professionals and semi-professionals, the relative uses of remittances for productive purposes would seem to demonstrate an inverse relationship with the skill level of the migrants. This is quite significant under the second definition used.
With regard to the length of stay abroad of the migrants. the relative use of remittances for productive purposes increases monotonically upto a maximum duration of 4 years. Beyond this period. relative use of remittances for productive purposes gradually declines, the absolute level of remittances used for that purpose though continues to rise. Both the absolute and relative uses of remittances for productive purposes correspond positively with the level of remittances received. Migrant families receiving total remittances upto Taka 100,000 for instance. used at the most 31 percent of the total remittances received for porductive purposes ; the corresponding figure for the highest remittances receiving group is 67 percent. The observed relationship between the use of remittances for porductlve purposes and the premigration land (agricultural) ownership of the migrant families is erratic.

IV. Role of Government for Productive Use of Remittances
Channeling remittances into productive uses will require three sets of pre-conditions. First. the migrants or the respective families should accumulate some surplus (out of overseas remittances received by them) over and above their immediate .consurnptron needs. Second. there should be adequate opportunities for using remittances productively. Third, and most important of all. government policies towards productive use of remittances should be appropriate and consistent. 10 99 . .
In the context of Bangladesh, for a great majority of the migrant families the surplus generated out of overseas remittances is very low. An enhanced standard of living following migration and the observance of various social occasions account for a sizeable proportion of the remittances received. Use of remittances for consumption purposes results from the failure of the migrants or concerned families to appreciate the need for productive use of remittances. The observed low level of use of remittances for productive purposes could further be related to a lack of adequate investment opportunities in the country-capital or portfolio. Opporturuty for investment is seen here in relation to the expectations and managerial qualities of the migrants or of the respective family members. Even with respect to the simple Iorms of investment in assets such as Saving Certificates. Postal saving Schemes, Prize Bonds. Wage Earner's Development Bond, etc .. very few of the migrant families are aware of these schemes, let alone to make use of them. In the case of capital investments. official requirements are so stringent that it takes years before any investment plan can actually be realised .
Given these different constraints, there are three important areas where the government could play an active role to encourage greater use of remittances for productive purposes. These are : (i) awareness building ; (ii) creation of new opportunities for investment ; and (iii) direct participation.
JO. The current government policies towards overseas remittances may be divided into two broad groups : (a) those designed lo encourage a greater flow of remittances through the institutional channels ; (bl those designed to encourage productive uses of remillanccs. Under the firsl set of policies, nationals working abroad are allowed to : (i) have a higher exchange premium which is compatible with the market rate of foreign exchange, (ii) open foreign currency accounts and retain their overseas savings in foreign currency until six months after they have returned home permanently, (iii) repatriate abroad the savings kept in foreign currency accounts, (iv) use foreign exchange earned to import goods allowable under the Bangladesh Wage Earners Scheme, and (v) enjoy tax exemptions for their overseas savings. The second set of policies include : (i) Wage Earner's Development Bond, (ii) Investment from the appropriate authority (tes), and (ii) import certain capital machinery out of overseas savings at a concessionary rate, or free of licensing requirements.

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Bangladesh Journal of Public Administration 0 Awareness Building : This will have two aspects. First, to generate awareness among the migrants or the respective families about the need for utilising a part of their overseas remittances for productive purposes. i.e .. to accumulate assets which would yield some return, or having scope for capital gains or resale values. The second aspect of awarenss building will relate to making people aware of the opportunities available in the country to invest their overseas savings. i.e .. areas/sectors where opportunities exist for investment. 11 As a method of raising awareness. different publicity media. e.g .. radio, television, newspapers. could be used more widely. Publication of booklets and pamphlets covering the various aspects of productive use of remittances and their distribution among the migrant families would seem quite useful.
(W Creation of New Opportunities for Investment : In addition to the existing investment opportunities. new facilities will need to be created. These should take into account the attitudes and expectations of the migrants, geographical areas within Bangladesh where they come from, and their financial and entrepreneurial capabilities.
(iii) Direct Participation of the Government : This will be seen both as complementary and substitute to the other roles recommended for the public authorities. Direct participation of the government could have three important facets. First. in the events of disinvestment or denationalisation of industries currently belonging to the public sector a part of this could be earmarked for the nationals working abroad payable, preferably, in foreign exchange. Secondly, government could undertake new investments with a view to selling them off to the prospectives migrants at a later date. The nature and level of such investments should conform to the financial and entrepreneurial capabilities of the prospective buyers. Thirdly, government could set up institutional facilities whereby overseas remittances could be diverted into productive uses. One suggestion here would be to create financial institutions, may be called Overseas Development Fund. geared to channeling overseas remittances to the 11. Overseas remittances have great potentials for investment and employment generation in sectors such as : (i) agriculture, (iv) river and road transportation, (v) service industry as such, and (vi) industry. For further details on this, sec, Mahmood, RA., "International Migration and Domestic Economy", in Islam, R., and Muqtada, M. (eds.], Bangladesh Selected Issues in Employment and Development, .I\R'n• :P /ILO, New Delhi, 1987. prospective investors within Bangladesh. It will draw its loanable fund from the foreign currency deposits of nationals working abroad, and provide long-term investment loans to the prospective investors within Bangladesh. Public ownership of the fund on a majority basis would act as a security to its depositors, as well as an important source of initial capital.

V. Conclusions
Given the magnitude and potentials of overseas remittances, and the expectations of the migrants to use these to improve upon their socio-economic conditions, the current pattern of uses of remittances would seem to be far from being the optimal. Based on even a seemingly loose definition' of the productive use of remittances, only half of the remittances used by a sample of 306 returned migrants from the Middle East could be classified as being productive. From the national point of view the corresponding share will be even lower. Productive use of remittances appears to be function of the level of remittances received by the migrant households. The latter would, however. depend on the skill composition of the migrants as well as on the tenure of their employment abroad. The low level of use of remittances for productive purposes could be explained in terms of three factors : (i) lack of adequate surplus generated out of overseas remittances over and above the immediate consumption needs of the family : (ii) inability of the migrants or the respective households to appreciate the need for, and/ or utilise a greater proportion of remittances for productive purposes : and (iii) lack of adequate investment opportunities within the country for the productive use of remittances.
A proper exploitation of the potentials of overseas remittances for investment and employment generation will require an active participation of the government in this matter. The three important areas in which the government could play an active role are : (a) awareness building among the migrants about the need for and potentials of a greater use of remittances for productive purposes ; (b) creation of new opportunities for the investment of overseas remittances keeping in view the financial capabilities, expectations, entrepreneurial qualities, and geographical distribution of the migrant families within Bangladesh ; and (c) direct participation in channeling remittances into productive uses, and in creating institutional facilities geared to this direction.