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Global Economic Prospects 2006 Economic Implications of Remittances and Migration November 28, 2005.

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Presentation on theme: "Global Economic Prospects 2006 Economic Implications of Remittances and Migration November 28, 2005."— Presentation transcript:

1 Global Economic Prospects 2006 Economic Implications of Remittances and Migration November 28, 2005

2 Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

3 Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

4 Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. The possibility of a large and disruptive rise in interest rates also poses a serious risk.

5 Growth in developing countries is still strong Real GDP annual change % Developing High-income Forecast 2007

6 Poverty forecast Poverty forecast Share of population living on $1/day, millions

7 Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

8 Poor oil-importing countries now more vulnerable m7 Sub-Saharan Terms-of-trade impact (% of GDP) Low-income

9 Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. The possibility of a large and disruptive rise in interest rates also poses a serious risk.

10 Basis points Low spreads have supported growth, but…

11 Basis points Low spreads have supported growth, but…

12 Policy priorities Long-term prospects of developing economies will depend importantly on further reforms, including a successful Doha round. Policy must promote not impede oil-sector adjustment mechanisms. Increased public and private savings in the U.S., supportive policy in Europe and continued balance sheet vigilance by emerging markets will reduce global interest rate risks.

13 Development implications of migration and remittances Migration and remittances continue to increase Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances There is considerable scope for reducing remittance costs faced by poor migrants

14 Development implications of migration and remittances Migration and remittances continue to increase Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances There is considerable scope for reducing remittance costs faced by poor migrants

15 Private debt and portfolio equity FDI ODA Recorded remittances Remittances have continued to increase

16 Top recipients of remittances, 2004 $ billion% of GDP

17 Development implications of migration and remittances Migration and remittances continue to increase Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances There is considerable scope for reducing remittance costs faced by poor migrants

18 Migration boosts welfare for most households Change in real income in 2025 $ billion. Global gains of $356 billion

19 Remittances reduce poverty Evidence from a few household surveys shows that remittances reduce poverty Cross-country evidence shows that a 10% increase in per capita remittances leads to a 3.5% decline in the share of poor people Remittances also finance education and health expenditures, and ease credit constraints on small businesses

20 Remittances tend to rise following crisis, natural disaster, or conflict Remittances as % of private consumption

21 Remittances improve countries access to capital Present value of external debt as % of exports of goods, services, and remittances

22 Large remittance flows may lead to currency appreciation and adverse effects on exports Remittances may create dependency Remittance channels may be misused for money laundering and financing of terror Downside

23 Development implications of migration and remittances Migration and remittances continue to increase Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances There is considerable scope for reducing remittance costs faced by poor migrants

24 Remittance fees are high, and regressive Fee and foreign exchange commission as % of principal Weighted average of fees of four largest money transfer operators in the U.S.-Mexico corridor

25 Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

26 Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

27 Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

28 Thank you!

29 International migration has increased Stock of migrants as share of destination countries population (%) Source: UN

30 Top sources of remittances, 2004 $ billion % of GDP

31 Income differences are a powerful motivation for migration Median wage levels for workers in the same occupation, relative to high-income economies ( , adjusted for purchasing power) Source: Freeman and Oostendorp 2000

32 Sources of gains for origin countries (Composition of percent change in real income in 2025)

33 Critical assumptions behind model results Differentiation between native and foreign workers Share of income sent home by migrants Distribution of profits Impact on government budget

34 High-skilled emigration rates are high in some countries # of countries share of developing country population (%)

35 Private debt and portfolio equity FDI ODA Recorded remittances Remittances have continued to increase…as % of GDP

36 International investors Remittance payments (foreign currency) Remittance senders Excess cash (foreign currency) Debt service payment Remittance securitization structure Trustee collateral account Correspondent banks Issuing bank credits beneficiarys account in domestic currency Beneficiarys account Message DomesticOffshore Issuing bank

37 Borrowing cost rises exponentially as credit rating deteriorates

38 Remittances can help obtain and improve credit rating Remittances (% of GDP, 2004) Rating excluding remittances Rating including remittances Spread saving (basis points) Lebanon14B+BB-150 Haiti*28CCCB-334 Nicaragua*11CCC+B-209 Uganda*5B-B161 * Calculated using a model similar to Cantor and Packer (1995), see Ratha and De (2005)

39 Securitization of future remittances can improve credit rating above investment grade YearIssuer Amount (US$ mn) Flow type Transa- ction rating Sover- eign rating 1998 Banco Cuscatlan 50Remit.BBBBB 2004 Banco Salvadoreño 25DPRsBBBBB+ 2002Banco do Brasil 250Remit.BBB+BB-


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