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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
