Dilip Ratha of the World Bank, standing at left, spoke last month to students at a school in his hometown, Sindhekela, India
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.
D-8 Secretary General, Dipo Alam, together with Dr Priyo Pujiwasono, D-8 Research Assistant in DC, met with Dilip Ratha last year. In the meeting, they underlined the importance of D-8 to continously follow up migrant workers and remittances issues during this era of financial turmoil, since in many cases remittances shows a higher volume compared to ODA, capital investment, and FDIs.
Recently, D-8 in collaboration with The International Youth Foundation (IYF) had proposed to implement a pilot program in Indonesia to promote the increased use of remittances from overseas workers for investments that will promote food security and employment in the origin areas of the workers. The initial program will be established in selected areas of this country and implemented in collaboration through Indonesian government, banking institutions, private sector recruitment companies and agricultural development NGOs coordinated by Indonesia Business Links (IBL) in Indonesia.
Below, the World Bank remittances expert Dilip Ratha answered your questions in a live online discussion on Wednesday, April 8.
Transcript
Helena Swanson-Nystrom:
Do you expect to see governments having to provide for services that might have otherwise been attained through remittances at a household level(such as education or health care)? How will development policy change if remittance levels continue to fall?
Dilip Ratha:
Excellent question!
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.
Prime Sarmiento:
1. The Philippine economy is expected to remain resilient, because of steady inflow of remittances. But poverty remains a problem. Can remittances help in keeping poverty level in check?
2. Can you give us an update on the proposal to put up an international institution focusing on remittances?
Dilip Ratha:
Remittances can help reduce poverty of recipient households and, perhaps, some other households in the neighborhood. But remittances cannot be a substitute for growth and employment generation efforts at home.
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.
John Weiss:
Hi Dilip,
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?
Thank you.
Dilip Ratha:
Until remittances were “discovered” and explained as the most tangible and, perhaps, the least controversial link between migration and development, not many institutions to my knowledge looked at migration as a development issue. In the World Bank, our focus is on development, and we believe that migration can be leveraged significantly for improving development outcomes. We are working closely with individual experts, and other institutions worldwide to understand the links between migration and development.
Kartik Mehta:
Hello Dilip:
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.
Dilip Ratha:
1.I welcome the recent decision by the U.S. to allow remittances to Cuba.
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.
Liliana Carvajal:
I’m writing from UNDP - Human Development Report Office.
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,
Dilip Ratha:
This is probably true for all balance-of-payments items including world exports and world imports (and probably provides direct evidence that there is life outside earth;)). In general inward flows tend to be better recorded than outward flows. Also there is often confusion between personal remittances and trade- or tourism- or investment- or private charity-related small transfers. Different countries have different reporting standards - some (e.g., South Africa) insist on reporting all cross-border flows without any threshold for exemption, and others (e.g., Japan or EU countries) have high thresholds below which remittance transactions do not have to be reported. Then there are informal flows that mostly go unreported.
Jitendra Panda:
My questions are:
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?
Dilip Ratha:
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.
Jawwad Rizvi:
My question is related to third world countries specific - I’m working Journalist in The News and work on commerce, industry and financial issues. My question is how current global economic recession will affect the growth of 3rd world nations, especially, Pakistan, India, and Bangladesh.
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 .
Dilip Ratha:
Although the number of new migrants appears to be significantly smaller this year than the last year, the number of returning migrants is still relatively small compared to the large stock of existing migrants abroad in South Asia as well as other parts of the world. I don’t think that the stock of migrants will decline any time soon.
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.
Sergio Vieira:
Dear Mr Dilip Ratha,
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?
Dilip Ratha:
You are right. The counter cyclicality of remittances varies from country to country, typically depending on the income level of the remittance recipients. In poorer households, remittances are mostly used for consumption, whereas in the relatively better off households, there is also an investment motivation. Remittances tend to be more counter cyclical when they are for consumption purposes than when they’re for investment purposes. That to a large extent would explain the regional differences in counter cyclicality.
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.
Otabor Isaac:
“Remittances are “resilient” because many migrants are unlikely to leave their adopted countries and will continue to send money home” says economist Dilip Ratha.
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.
Dilip Ratha:
We have answered this question in our blog post Remittances expected to fall by 5 to 8 percent in 2009.
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.
Helka Repo:
I would like to hear your views regarding the following subjects:
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?
Thank you.
Dilip Ratha:
For answers to your questions 1 and 3, see my answer to Helena Swanson-Nystrom.
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.
Source: The World Bank
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