Remittances will fall more than originally expected this year—from $305 billion last year to an amount closer to $290 billion in 2009, according to the latest World Bank research. But even with drop, remittances will still outstrip private capital flows, expected to fall by half in 2009, and official development aid, typically around $100 billion. Remittances are "resilient" because many migrants are unlikely to leave their adopted countries and will continue to send money home, says economist Dilip Ratha, who leads the World Bank’s Migration and Remittances team.
World Bank remittances expert Dilip Ratha answered your questions in a live online discussion on Wednesday, April 8.
In that sense, you are right that in future development economists must also focus on international migration in addition to trade and investment flows.
One major constraint in this respect is lack of data on remittances, and especially on migration. We need to improve data but we will face a challenge that on migration it would be hard to make quick progress because migrants themselves, sending country governments, and receiving country governments have tended to be less open about revealing migration information. On remittances, we had a G8 remittances working group to improve remittances statistics. Three new variables are being added to the IMF balance of payments manual (6th edition). There is also a new G8 remittances working group trying to improve remittances data in addition to looking at development interconnections and payment system issues.
Every now and then we have anecdotal evidence of this phenomenon especially in the aftermath of natural disasters. For examples, after the Hurricane Mitch in Central America and the recent cyclone in Myanmar, remittances from overseas migrants rushed in to help affected families while government help was slow to come in raising precisely this criticism. That said, remittances are only going to benefit families that have migrants abroad so they cannot help all the affected families in a post-disaster situation. This also applies to normal times, remittances will only benefit families that have migrants abroad. And the number of such families is very small—only 3% of world population are international migrants. Private funds such as remittances should not be expected to serve public needs. For that, public funding is necessary.
The second part of your question, how will development policy change if remittance levels continue to fall, is harder to answer. For sure a decline in hard currency remittance flows would create external financing gaps in many remittance dependent countries, particularly small and poor countries. Also, to the extent that remittances provide a safety net to a significant number of poor families, a decline in these flows would challenge governments to step in.
2. Can you give us an update on the proposal to put up an international institution focusing on remittances?
Regarding your 2nd question, I do feel that there is need for a one-stop shop that maps remittances and migration, examines ways to reduce remittance costs by introducing new technology, leverages on remittances for financial access of households, and for capital market access of institutions/countries. For official aid (about $100 billion a year), there are tens of institutions; for FDI, there are several institutions; however, there are only a handful of individuals focusing on remittances.
There seem to be so many organizations around the world, including a couple of groups inside the World Bank, that focus on migration and remittances. Many of your products (such as migration and remittances data) seem to be a compilation of data that others produce.
What is it that your group does that makes you different from these other groups?
I have the following questions.
1. What are the possible implications of the recent decision by the U.S. to allow for greater amount of remittances to Cuba.
2. Are any of the alternative forms of techology gaining traction.
3. Are there corridors where you believe remittances are positive compared to a year ago.
4. Have you noticed an increase in price competition becuase of the recent decline in remittances.
2. Although cell phone-based remittances look very promising, AML/CFT regulations are constraining their growth in the cross-border market. Card-based programs, especially stored value cards, seem to be doing well.
3. Remittances growth has been positive in the Middle East-to-South Asia corridor. Also domestic remittances in China and India will remain robust.
4. I have noticed an increase in price competition, but not necessarily because of the crisis-related slowdown in remittance flows. The market is definitely getting more competitive and this is a structural change not a short-term phenomenon.
We are currently in the process of writing our forthcoming report on Migration, and in the process we are, therefore, using extensively the available data on remittances, which you have produced, and following up on every update. We are very pleased to have such as wealth of information available, and for this great effort we congratulate you and your team.
We have a questions regarding the recently released data on inflows and outflows (March 2009). We would like to better understand the difference between the world’s total values for inflows (397,047) and outflows (248,283). We have also noticed that this difference is actually growing over the years; say the difference between the two totals was 16% in 2000 and for 2007 it is 33%.
Grateful if you can explain us understand the rationale for this.
May thanks and hoping to hear from you soon,
1: How remittances affect the economy of both migrants host and origin countries?
2: Is there any data / study to inform how the remittances is being used by the migrant families back home?
3: Is there any established relationship between remittances and rise of terrorism?
1. Please see my blog post at http://peoplemove.worldbank.org/en/content/remittances-reduce-poverty and the brief "Leveraging Remittances for Development".
On the impact on the host countries, research conducted for the Global Economic Prospects 2006 report on the economic implications of remittances and migration showed that migration benefits the countries of origin, the countries of destination as well as the migrants themselves -- a win-win-win solution.
2. In poorer families remittances are often used for consumption. But after basic consumption needs are met, remittances are also used to finance education, health, housing and small business investment. Some studies show that there is little difference between the use of remittances by recipient households and the use of additional income by households that don't receive remittances. However, I think remittances are value-added money. The added value comes from the migrant's close involvement in how his/her money is spent by the recipient. Remittances usually come with instructions on how to use the funds.
3. Not that I know of.
A large number of citizen of these countries has been working aboard and sending a good amount back to their families regularly and their families mainly dependent upon the remittances.
In current scenario a large number of people working in Middle East has gone back to their countries as the companies were closed – this turmoil will continue upto when? What these people will do to counter their joblessness and to feed their families?
Another query related with the famous but not legal channel of remittances which was popular across the world known as Hundi and Hawala (reference) – how the bank see this channel as this is the quick source of delivering remittance money of the worker doing abroad to their families .
Regarding your 2nd question relating to legal channels of remittances, my view is that people use Hundi and Hawala not because they want to violate the law, but because the formal channel is either not accessible or is too costly. Sometimes, social restrictions on the mobility of women who receive remittances require that remittances are delivered to the doorstep.
At the household level, the development impact of remittances, whether through informal or formal channels, is significant. At the macro economic level, however, Hundi or Hawala channels are always associated with capital flight, mostly because the recipient country has exchange controls.
I have two questions:
- In 2008, the level of remittances increased more rapidly in some regions, comparing for example South Asia or East Asia, with Latin America and the Caribbean. Can we consider that remittances counter cyclicality are different by regions?
Which factors can explain such differences?
- In your last revised outlook for 2009, you consider an expected fall in remittances by 5 to 8 per cent. The resilience of remittances flows seem to be quite strong in face of the current crisis, in particular considering that the crisis is simultaneously occurring in both sending and receiving countries. Isn’t the actual resilience of remittances only a short term phenomenon? In particular, if labor market conditions continue to deteriorate significantly for immigrants in host countries, other things being equal?
We have discussed the reasons for resilience of remittances in our blog post Remittances expected to fall by 5 to 8 percent in 2009. Regarding the short-term versus the long-term resilience of remittances, you’re right that remittances might fall further if the crisis becomes deeper or lasts longer. That said, the decline in remittances would still be smaller than the decline in private capital flows to developing countries. Also, it is worth noting that remittances tend to be persistent over time mainly because the stock of migrants tends to be persistent and migrants send only a small portion of their income as remittances.
Please,what critical factors will make many migrants remain in their adopted countries,when the countries'nationals are losing their jobs?
Also,what will cause migrants to continue to remit money to their home countries,when some of them have experienced/experiencing pay cut.
To quickly summarize, migrants are trying to stay on in destination countries despite weak job markets and lower pays there because the situation back home is often worse.
They are trying to absorb the income shock if any by skipping a meal or sharing accommodations to be able to continue to send remittances because every dollar saved is worth a lot to the family back home.
Also, as immigration controls have been tightened in many destination countries, migrants are discouraged from returning home because they know they can’t go back so easily when the situation improves.
Finally, in migrant destination countries facing crises and weak job markets employers will evaluate hiring and firing decisions on a case by case basis. Left to themselves no employer would want to hire only native workers and fire only migrant workers. Instead he or she would evaluate the contribution of the worker relative to the cost of hiring the worker, and make a decision about hiring/firing. Migrant workers are typically cheaper, more flexible and more productive. For an employer facing falling revenues, it would not make sense to fire only migrant workers. This is the first part of your question.
1. How do you see the remittances benefiting the development of the least developed countries when most of the remittance flows seem to be sent between families and used for private, short term necessities?
2. What could or should be done, institutionwise, to get the remittances to benefit societies on a larger scale?
3. The remittances could be seen compensating the tasks/responsibilites of states. Do you see this problematic?
4. I’m thinking of using the African Union’s material for research data (for master’s thesis) regarding diaspora politcs/discourses. How would you regard the African Union as an actor in diaspora/remittances policies?
For question 2, you might want to take a look at this post on Migrant Remittances on my blog People Move. This blog post also has a link to the international remittances agenda. As I mention there, remittances can improve financial access at the household level and access to capital at the institution/country level. By reducing remittances costs billions of additional dollars can be channeled to developing countries. Thus, these small sums of money sent by millions of migrants can generate large development impact.
Regarding your final question, the African Union has identified the African diaspora as the 6th regional economic community of Africa. The AU can leverage the diaspora for Africa’s development.