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The International Monetary Fund (IMF) in its spring World Economic Outlook report says that remittances to developing countries have grown steadily over the past 30 years, and currently amount to about $100 billion a year. For many developing economies, remittances constitute the single largest source of foreign exchange, exceeding export revenues, foreign direct investment (FDI), and other private capital inflows. Moreover, remittances have proved remarkably resilient in the face of economic downturns. The essay finds that remittances can help improve a country’s development prospects, maintain macroeconomic stability, mitigate the impact of adverse shocks, and reduce poverty. Remittances allow families to maintain or increase expenditure on basic consumption, housing, education, and small-business formation; they can also promote financial development in cash-based developing economies. An essay by Nikola Spatafora, argues that significant benefits might flow from measures to reduce the cost of sending remittances, for instance by removing barriers to entry and competition in the remittance market. The analysis also suggests that the potential negative impact on remittances provides further grounds to be wary of exchange rate and similar restrictions. On a cautionary note, remittance-service providers must be appropriately regulated to diminish the risk of money laundering or terrorist financing. However, regulatory frameworks must take into account, and where possible minimize, any adverse impact on the cost of sending remittances. Flows of workers’ remittances to developing countries have grown steadily over the past 30 years, and currently amount to about $100 billion a year. This rising trend is likely to persist as population aging continues, and pressures for migration from developing to advanced economies increase. For many developing economies, remittances constitute the single largest source of foreign exchange, exceeding export revenues, FDI, and other private capital inflows. Moreover, remittances have proved remarkably resilient in the face of economic downturns and crises. Overall, workers’ remittances constitute one of the largest sources of external finance for developing countries. Total remittance inflows grew five-fold between 1980 and 2003 to reach $91 billion, or 1.6 percent of developing countries’ GDP—an amount not far short of total inward FDI, and larger than all other private capital inflows (Figure 2.1). These numbers, it should be noted, reflect official balance of payment statistics. There are severe problems with these data, which in particular are likely to exclude remittances occurring through informal channels (such as hawala, cash carried by friends and relatives, and in-kind remittances). As a result, actual remittances may be significantly underestimated. At a regional level, the Western Hemisphere and developing Asia in particular have experienced a major increase in remittance inflows, and currently account for the bulk of total remittance receipts (Figure 2.2). In absolute terms, the five single largest recipients of remittances during 1990–2003 were India, Mexico, the Philippines, Egypt, and Turkey (Figure 2.3). As a share of GDP, however, remittances are especially high among low-income, island, enclave, or generally small economies, such as Lesotho, Tonga, Samoa, Kiribati, and Cape Verde. In 24 countries, remittances during 1990–2003 amounted on average to more than 5 percent of GDP. In such countries, remittances are also very large relative to other sources of foreign exchange, such as aid or exports. For remittance outflows, data are even patchier than for inflows. The main sources of recorded remittances are the United States, Saudi Arabia, Switzerland, Germany, and France (see Figure 2.2). Since the late 1990s, the United States has been by far the largest source of remittances, accounting for $34 billion in 2003. Remittances from Saudi Arabia reflect its sizable employment of Asian migrant workers ever since the first oil-price boom, but there has been no growth in remittances since the mid-1990s. Remittances are a relatively stable source of external finance, not exhibiting the fluctuations often associated with private capital inflows. Throughout the 1980s and 1990s, remittance receipts stayed within a small range of 1–1.6 percent of developing countries’ GDP (see Figure 2.1). Non-FDI private capital inflows, exports, and even official aid and FDI all displayed greater volatility (Figure 2.4). In addition, remittances do not display the sharp procyclicality associated with non-FDI pital inflows; indeed, in many countries economic crises have been followed by sharp increases in remittances (e.g., Indonesia after 1997, Ecuador after 1999, and Argentina after 2001). © Copyright 2007 by Finfacts.com |
