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Workers’ Remittances
An Important and Stable Source
of Development Finance
Dilip Ratha
International Conference on Migrant
Remittances
London
October 9th, 2003
Outline
1. Rising importance of workers’ remittances
2. Pros and Cons
3. Policy issues
Remittances have become a key source
of global development finance
$ billion
FDI flows
2002
135
Private debt flows
-4
Official finance
35
Workers’ remittances
88
Main providers of remittances
Outward workers’ remittance payments
To all countries, $ billion
35
United States
30
25
20
15
Saudi Arabia
10
5
0
1972
1977
1982
1987
1992
1997
2002
Main providers of remittances
Outward workers’ remittance payments
To all countries, $ billion
35
United States
30
25
20
15
Saudi Arabia
10
5
0
1972
1977
1982
1987
1992
1997
Remittances rise with migration and income
2002
Migration will increase in the long-term
 Income gap between source and destination
countries is wide
 Dependency ratios and pension costs are rising in
industrial countries
 Temporary, and South-South, migration to
increase
Pros:
Remittances are stable
Capital flows to developing countries
$ billion
200
180
FDI
160
140
120
100
80
60
40
20
Remittances
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
Official flows
19
89
19
88
0
-20
Capital market flows
And more evenly distributed:
Although top recipients are large
countries….
$ billion, 2002
14
11
7.4
2.9
India
Mexico
Philippines Morocco
2.9
Egypt
Smaller countries receive more
remittances as a share of GDP
Remittances as % of GDP, 2002
39
29
23
17
Tonga
Lesotho
Jordan
Moldova
16
Samoa
Cons:
Remittances may…
Cons:
Remittances may…
 …finance “unproductive” spending
Cons:
Remittances may…
 …finance “unproductive” spending
 …promote idleness among recipients
Cons:
Remittances may…
 …finance “unproductive” spending
 …promote idleness among recipients
 …raise inequality in the middle-income range
Cons:
Remittances may…
 …finance “unproductive” spending
 …promote idleness among recipients
 …raise inequality in the middle-income range
 …lead to currency appreciation and Dutch
disease
Policy issues
Policy issues
 Recognize that remittances are person-to-person
flows
Policy issues
 Recognize that remittances are person-to-person
flows
 Improve data reporting
Policy issues
 Recognize that remittances are person-to-person
flows
 Improve data reporting
 Encourage flows through formal sector
Remittance costs are high and
regressive
Charge
21%
13%
10%
9%
8%
7%
6%
40
75
150
225
300
375
560
5%
745
4%
930
Principal amount (euros)
4%
4%
4%
3%
1120
1305
1490
1860
Improve migrants’ access to banks
Improve migrants’ access to banks
Strengthen financial infrastructure
Strengthen financial infrastructure
 Clearing house arrangement
Strengthen financial infrastructure
 Clearing house arrangement
 Improve transfers to rural areas – tie up with
POSBs
Strengthen financial infrastructure
 Clearing house arrangement
 Improve transfers to rural areas – tie up with
POSBs
 Increase transparency and competition
Strengthen financial infrastructure
 Clearing house arrangement
 Improve transfers to rural areas – tie up with
POSBs
 Increase transparency and competition
 International cooperation may be needed
Improve investment climate in recipient
countries
Remittances as % of GDP, 1996-2000
High
Low
Corruption
0.5
1.9
Inequality
0.9
1.5
M2/GDP
1.2
0.9
Trade/GDP
1.2
1.0
Summary
 Remittances have become an important – and stable source of global development finance
 Increasing remittances would require strengthening the
financial infrastructure and improving the investment
climate