Dubai companies exploiting remittance incentives, economist Ahsan H Mansur says

He proposes diverting the Tk 62.5 billion in annual subsidies for remittance incentives to health and education sectors

Economist Ahsan H Mansur has recommended discontinuing the government's 2.5 percent cash incentives on inward remittances, alleging that some Dubai-based companies are exploiting the stimulus.

The executive director of the Policy Research Institute proposes diverting the Tk 62.5 billion in annual subsidies for remittance incentives to health and education sector development.

"Those who should benefit from the 2.5 percent incentive intended to boost remittances are not receiving it as expected. Instead, Dubai-based companies are receiving this fund and benefiting more," he said at a seminar organised by the Economic Reporters' Forum or ERF on Saturday.

The seminar on the factors behind the bad state of Bangladesh's banking sector covered a range of economic variables, including the exchange rate, reserves, remittances, and exports, in addition to banking issues.

"I believe the 2.5 percent subsidy should be discontinued. When it continues, it creates multiple currency rates in the market, which I don't think is necessary," said the former official of the International Monetary Fund or IMF.

India spends 6 percent of its gross domestic product or GDP on health, while the US spends 17 percent, he said.

“Our expenditure, however, is only 0.6-0.7 percent, highlighting the fragile state of our health and education sectors."

When bdnews24.com asked how Dubai-based companies are availing remittance incentives, Mansur explained: "Prominent companies in Dubai aggregate remittances from other Middle Eastern countries such as Oman and Saudi Arabia. They then consolidate and send these funds as remittances to Bangladesh, thereby benefiting from the incentives. This has resulted in a decrease in remittances from other Middle Eastern countries."

Mansur used the example of implementing a crawling peg to illustrate how making rational decisions can effectively manage economic fluctuations, devoid of emotional influences.

Dollar price jumped by Tk 7 in a day suddenly to peak at Tk 125 after the introduction of the system, but the rate stabilised afterwards in the past two and a half months, he said.

The economist also advocated for a slight increase in the policy interest rate, saying: "In my view, 8.50 percent isn't sufficient; if needed, raising it from 9.5 percent to 10 percent would be beneficial for the economy."

"To maintain dollar stability, it's crucial to keep bank interest rates elevated. Ideally, the bank loan interest rate should range between 12 and 14 percent."

He further suggested that implementing these policies could potentially reduce high inflation to 6.5 percent by year-end.