Workers’ Remittances An Important and Stable Source of Development Finance Dilip Ratha International Conference on Migrant Remittances London October 9th, 2003

Outline Rising importance of workers’ remittances Pros and Cons Policy issues

Remittances have become a key source of global development finance $ billion 2002 FDI flows 135 Private debt flows -4 Official finance 35 Workers’ remittances 88

Main providers of remittances Outward workers’ remittance payments To all countries, $ billion United States Saudi Arabia 1972 1977 1982 1987 1992 1997 2002

Main providers of remittances Outward workers’ remittance payments To all countries, $ billion United States Saudi Arabia 1972 1977 1982 1987 1992 1997 2002 Remittances rise with migration and income

Migration will increase in the long-term Income gap between source and destination countries is wide Dependency ratios and pension costs are rising in industrial countries Temporary, and South-South, migration to increase

Pros: Remittances are stable Capital flows to developing countries $ billion

And more evenly distributed: Although top recipients are large countries…. $ billion, 2002

Smaller countries receive more remittances as a share of GDP Remittances as % of GDP, 2002

Cons: Remittances may…

Cons: Remittances may… …finance “unproductive” spending

Cons: Remittances may… …finance “unproductive” spending …promote idleness among recipients

Cons: Remittances may… …finance “unproductive” spending …promote idleness among recipients …raise inequality in the middle-income range

Cons: Remittances may… …finance “unproductive” spending …promote idleness among recipients …raise inequality in the middle-income range …lead to currency appreciation and Dutch disease

Policy issues

Policy issues Recognize that remittances are person-to-person flows

Policy issues Recognize that remittances are person-to-person flows Improve data reporting

Policy issues Recognize that remittances are person-to-person flows Improve data reporting Encourage flows through formal sector

Remittance costs are high and regressive Charge

Improve migrants’ access to banks

Improve migrants’ access to banks

Strengthen financial infrastructure

Strengthen financial infrastructure Clearing house arrangement

Strengthen financial infrastructure Clearing house arrangement Improve transfers to rural areas – tie up with POSBs

Strengthen financial infrastructure Clearing house arrangement Improve transfers to rural areas – tie up with POSBs Increase transparency and competition

Strengthen financial infrastructure Clearing house arrangement Improve transfers to rural areas – tie up with POSBs Increase transparency and competition International cooperation may be needed

Improve investment climate in recipient countries Remittances as % of GDP, 1996-2000 High Low Corruption 0.5 1.9 Inequality 0.9 1.5 M2/GDP 1.2 0.9 Trade/GDP 1.2 1.0

Summary Remittances have become an important – and stable - source of global development finance Increasing remittances would require strengthening the financial infrastructure and improving the investment climate