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When Money Really Matters - Remittances Vital to South Asia

 
Interview: "Remittances are Beautiful" 


Samuel Munzele Maimbo is one of the authors of Remittances: Development Impact and Future Prospects.   Listen to his interview discussing the importance of remittance money to people in South Asia.

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July 19, 2005

Remittances – money sent home by immigrant workers abroad – are hugely beneficial to South Asian countries.

Bangladesh, India, and Pakistan, are among the world’s top receivers of remittances. A new collection of studies demonstrates how important this flow of money is for South Asia.  >>>get the book

Recognizing the development potential of these flows, the World Bank’s publication Remittances: Development Impact and Future Prospects, edited by Samuel Munzele Maimbo and Dilip Ratha, explores key questions that remain unanswered:

. Exactly what is the impact of international migration and remittances on the developing world?

. What sort of development do these flows actually finance?

. What is their impact on poverty in different regions of the developing world?

Compiling the contributions of some 20 experts from different disciplines and providing a wealth of data, the publication discusses the efforts of developing countries to harness these funds for development. Clearly, however, more needs to be done.

Remittances: An Economic Force in South Asia

Remittances by international migrants to their home countries have grown dramatically in recent years. They are now the largest source of external finance for developing nations after foreign direct investment (FDI). For many countries, remittances are larger than FDI, and in some cases, larger even than official development aid.

In 2004, remittances to developing countries exceeded US$126 billion, up by nearly 48.7 percent from 2001. Actual amounts are probably much larger because flows through informal channels such as hawala elude official data collection.

As many workers continue to look abroad for the chance to make a better living, these flows are likely to grow further in the years ahead.

Money remitted home is one of the most visible - and beneficial - outcomes of global migration. The number of global migrants has risen markedly in recent years due to persistent income inequalities between nations, including between developing countries. The United Nations estimates that about 175 million people, or roughly 3 percent of the world’s population, lived and worked outside the country of their birth in 2000, up from 120 million in 1990.

The rise in officially recorded remittances is also the result of economic policy changes in many developing countries that have encouraged remitters to shift from informal to formal channels to transfer their funds. Efforts to curb money laundering and terrorist financing have also brought more transfers into the official fold.

Unlike other capital flows, remittances are stable and directly benefit the poor. After the Asian financial crisis of the late 1990s, remittances to developing countries continued to rise even though FDI and official aid flows declined.

Moreover, as migrants repatriate their savings, the rural areas of the developing world, from where much of the world’s transnational labor is drawn, are quietly being transformed.

With migration set to rise in the coming years as a result of globalization, remittances can be expected to grow steadily well into the foreseeable future. Therefore, both remitting and recipient countries are considering the long-term economic implications of these transfers.

Countries receiving the most remittances, 2003

(US$ billion)

India

17.4

Mexico

14.6

Philippines

  7.9

China

  4.6

Pakistan

  4.0

Morocco

  3.6

Bangladesh

  3.2

Dramatic growth in recent years

The United States (US$ 34.1 billion) and Saudi Arabia (US$14.9 billion) were the largest sources of workers’ remittances to developing countries in 2003. They were followed by Germany (US$9.9 billion), Switzerland (US$9.2 billion) and France (US$4.7 billion).

Several developing countries were also sources of remittances in 2003. They included Malaysia (US$3.8 million), the Russian Federation (US$3.2 billion), and China (US$1.6 billion).

Growth in remittances was especially strong  - nearly 83 percent during 2001-2004 – in low-income countries. India, which received the world’s largest remittance inflows, saw its inward remittances rise to over US$17 billion in 2003, up from almost US$14 billion in 2002, and over US$ 11 billion in 2001.

In Pakistan, remittances touched US$4 billion in 2003. A huge rise to US$ 2.4 billion was also recorded in 2002 which more than doubled the amount received by the country in 2001. The jump can be explained (in part) by the fact that money has shifted away from informal money transfer systems since the events of September 11, 2001.

Bangladesh, a major labor exporting country, received over US$ 3 billion in 2003 from the country’s diaspora. Since 1997, remittance flows into Bangladesh have exceeded the country’s foreign exchange reserves. More than 3 million Bangladeshis have gone abroad since the country’s independence in 1971, and their total remittances home between 1976 and 2003 have amounted to some US$22 billion.

In the South Asia region, remittances as a share of GDP were most significant for Nepal where they accounted for 14.8 percent of the country’s GDP in 2003. By way of comparison, the authors estimate that remittances to Jordan as well as to the West Bank and Gaza amounted to some 20 percent of the GDP of each, whereas for Bosnia and Herzegovina and Jamaica this was over 16 percent.

For Afghanistan, as in other conflict-afflicted countries, overseas remittances have been essential to families’ survival during decades of hardship and strife. Remittances have also spearheaded the private sector reconstruction efforts.

Growth or stagnation? Jalandhar vs Mirpur

At the local level, remittances help improve living standards by financing greater consumption in households, and enabling better health care, nutrition, housing, and education. However, their longer- term impact on developing countries may be questionable if few productive assets are created.

Large chunks of remittance money are often used by receiving communities to buy land and build houses. While this may in part, reflect the desire of migrants to improve housing for families left behind, it is often the result of a lack of other investment opportunities in the recipient community.

A chapter by Roger Ballard explores the impact of remittances on District Jalandhar in India’s Punjab, and the District Mirpur across the border in Pakistan’s part of Kashmir, both areas with a large numbers of migrants settled in the United Kingdom.

In Jalandhar, the author notes, remittances received in the 1970s were put to productive use and contributed to the green revolution in the state by enabling families to purchase tractors and machinery to increase agricultural production.

In Mirpur, on the other hand, despite the area’s considerable agricultural potential and larger and more sustained inflows of remittances, these funds spurred a housing construction boom. Most houses remain locked-up by their overseas owners while agricultural production continues to waste away. The only way out for most young people is to migrate. 

This is not a result of differences in entrepreneurial aptitude, however. It is, instead, a consequence of the different environmental, infrastructural, and politico-economic characteristics of the two districts which either help or hinder entrepreneurial activity.

The author discusses how a variety of carefully tailored “smart aid” initiatives can kick-start the productive potential of local economies where high levels of migration have taken place.

This applies to all parts of the developing world which are witness to chronic deceleration of rural growth as a result of large-scale migration to urban centers.

Tapping remittances for micro-enterprise development in Bangladesh

The real challenge rests in how one can improve the development impact of remittances. Many are trying to do so by directing a greater proportion of the remittance inflows into micro-enterprises.

One chapter in the publication reviews the efforts of several countries to tap the burgeoning volumes of workers’ remittances for development. It cites several examples in this regard, including Mexico where so-called Home Town Associations and other self-help groups are responsible for almost 20 percent of the capital invested in micro-enterprise in the country’s urban centers.

Another explores the possibility of using migrants’ remittances for micro-enterprise development in Bangladesh. It suggests options for pooling and redirecting individual remittances for the development of the country.

It notes the fact that Bangladeshi migrants are mostly risk-averse semi-skilled or unskilled workers with low earnings, many of whom continue to transfer funds through informal channels despite the government’s efforts to facilitate the use of banking channels.

However, despite these difficulties, the Bangladeshi diaspora may be willing to take part in the development of their country if the right instruments can be created to attract their interest.




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