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Outlook for remittance flows to developing countries: Recovery after the global financial crisis but risks lie ahead

Dilip Ratha's picture

 (Available in French and Spanish)

 
We have just released our latest outlook for remittance flows. Officially recorded remittance flows to developing countries are estimated to increase by 6 percent to $325 billion in 2010. This marks a healthy recovery from a 5.5 percent decline registered in 2009. In line with the World Bank’s outlook for the global economy, remittance flows to developing countries are expected to increase by 6.2 percent in 2011 and 8.1 percent in 2012, to reach $374 billion by 2012. (Note that the World Bank’s definition of developing countries has changed: Poland, which is estimated to have received $9.1 billion in 2010, is no longer a classified as a developing country.)

This outlook for remittance flows, however, is subject to three key risks:

  • First, the economic recovery in the major destination countries in North America and Europe is not very firm yet. There is a risk that the fiscal retrenchment being planned or implemented in some of the major destination countries might restrain aggregate demand and economic growth, and contribute to high unemployment rates, which in turn could reduce the migrants’ incomes and remittances.
     
  • Second, movements in currency exchange rates and commodity prices can pose unpredictable risks for remittance flows. While a weaker US dollar can imply larger dollar-denominated remittances from Europe, it can also increase dollar prices of assets and goods in remittance-receiving countries (such as India, Mexico and the Philippines).
     
  •  Finally, there is a risk that immigration controls imposed in response to high domestic unemployment rates will deepen and adversely affect migration and remittance flows. In general, protectionist policies that slow the movement of goods and people across borders are likely to delay an adjustment to the crisis and prolong the process of recovery. Such policies are also inconsistent with the sharp increase in demand for migrants projected in the rapidly aging societies of the North.

Will the economic recovery increase demand for immigrants in the labor market?

Sonia Plaza's picture

A recent study by PEW Hispanic Center states that immigrants are finding jobs faster during 2010.  According to the report “immigrants in the U.S. have gained 656,000 jobs since the Great Recession ended in June 2009. By comparison, U.S.-born workers lost 1.2 million jobs. The unemployment rate for immigrants fell over the same period to 8.7 percent from 9.3 percent. For American-born workers, the jobless rate rose to 9.7 percent from 9.2 percent.”

Two other labor indicators show a recovery for immigrants workers in the US labor market: 1) an increase in the labor force participation from 68% in the second quarter of 2009 to 68.2% in the second quarter in 2010; 2) an increase in the employment rate from 61.7% to 62.3% during the same period. The study also points out at the greater mobility of immigrants in finding jobs in different states. In a previous podcast we underscored the mobility of hispanic immigrants due to their diaspora connections (see previous post).

The challenge of forced displacement and survival Migration

Margarita Puerto Gomez's picture

The World Bank’s Social Development Department (SDV) and Migration and Remittances Unit hosted a brown bag lunch (BBL) on state fragility, forced displacement, and survival migration on September 21, 2010. Dr. Alexander Betts from the University of Oxford presented a compelling argument on the need for innovative institutional approaches to displacement and forced migration as a development challenge. In today’s world of internal conflicts, state and societal fragility, and climate-related threats to food security, constant movements of people are not only associated with political persecution (“refugees”) or the mere desire to improve livelihoods (“economic migrants”), but also with a concept called “survival migration.” According to Dr Betts, this concept refers to people who are forced to move outside of their countries of origin because of an existential threat to their liberty, security, or livelihood systems.  Such people do not fall within the existing conventions and agreements related to displaced people. Case studies conducted in Angola, Botswana, among others, illustrate that these migrants are extremely vulnerable groups and that their human rights are often violated in host countries.

Diaspora bonds for development financing during a crisis

Dilip Ratha's picture

On September 16 Greece announced that it plans to issue a diaspora bond. In the past the governments of India and Israel have raised over $35 billion dollars, often in times of liquidity crisis. Preliminary estimates suggest that Sub-Saharan African countries can potentially raise $5-10 billion per year by issuing diaspora bonds. Countries that can potentially consider diaspora bonds are Bangladesh, Colombia, El Salvador, Ghana, India, Jamaica, Kenya, Mexico, Morocco, Nepal, Nigeria, Pakistan, Philippines, Romania, Senegal, South Africa, Sri Lanka, Uganda, Zambia, and Zimbabwe (and also Greece, Ireland, Italy, South Korea and Spain). 

US signs historic deal with El Salvador and Honduras for remittance securitization

Sanket Mohapatra's picture

The United States has recently signed separate Memorandums of Understanding (MoUs) with El Salvador and Honduras to assist them in securitizing their future remittance receipts to raise financing for infrastructure and development projects. Under the Building Remittance Investment for Development, Growth, and Entrepreneurship (BRIDGE) initiative, banks in these countries will leverage their future remittance receipts to raise lower-cost and longer-term financing in international capital markets to fund infrastructure, public works, and commercial development initiatives (see press release).

In a speech in New York City on September 22, Secretary of State Hillary Clinton explained how BRIDGE would work to raise critically needed development funding:

“…Now, if they [migrants] send these remittances through the formal financial system, they create huge funding flows that are orders of magnitude larger than any development assistance we can dream of. By harnessing the potential of remittances, BRIDGE will make it easier for communities in El Salvador and Honduras to get the financing they need to build roads and bridges, for example, to support entrepreneurs, to make loans, to bring more people into the financial system…..Through BRIDGE and its in-country partners, local banks will be able to leverage their remittance flows….With the leverage from remittances, the local banks will be able to get lower-cost, longer-term financing for investments in infrastructure projects and small businesses.”

Who am I?

Raju Jan Singh's picture

Continuing the conversation on the question, 'Who am I?'.

Raju Jan Singh:

Who am I? Where is home?
I am from everywhere. Part of my family comes from Malawi. My mother is from Belgium, my father from India. I have an aunt in Australia and an uncle in Canada. My wife is French and my kids have probably turned American. I was born in Switzerland  and now live in Cameroon. So where is home? With such a mix, I feel nowhere really at home, but at the same time I feel myself at home everywhere.

Et tu, Sweden?

Elina Scheja's picture
    Photo/Istockphoto.com

Having followed the debate on welfare and economic policy prior to the Swedish parliamentary election, the arguments from both the ruling center-right alliance as well as the left-of-center opposition seemed convincing enough to be considered for the next political leaders of the country. The opinion polls were predicting a tight outcome in slight favor of the ruling coalition. On Sunday the votes were counted and the results surprised everybody: 2010 ended up being a historic election with no clear winners, but only one big setback. Even though the ruling alliance got a renewed mandate as the largest coalition, it failed to get the majority of the seats in the parliament. The leading opposition party, the Social Democrats, preserved its status as the largest party in the country, but thanks to the strong alliance formed by the center-right coalition, it will be unable to take over the country’s political leadership. The real winner of the election, however, was the anti-immigrant ultra-right wing party Sweden Democrats. The party got 5.7 percent of the votes that guarantees it the swing vote in the parliament making both the established party coalitions dependent on their support. Even though all established parties have categorically stated that they will not seek support from the Sweden Democrats, their passive support will be required for any majority decision.

Migration Policies: Hot Topics

Sonia Plaza's picture

(With Roberto Ponce)

Migration issues have been at the center of discussion in the international agenda, mainly because of the financial crises and the new protectionism measures implemented by developed countries. Despite these current issues, there are several long-term topics that will require further research and attention within next decades.

Among these topics - climate change and demographic changes, and their respective linkages with migration, will be the most challenging one in terms of policy design.

Regarding demographic changes, developed countries (Europe, Japan) are aging whileAfrica, Middle East, and South Asia still experience a transitional demographic change. The challenge will be to meet the needs of migrants with their specific requirements of skills in developed countries, and the offer of youth labor with their specific stock of skills from developing countries. Countries need to be ready to meet these demands.

Mobile phone technology and remittance services for the poor

Dilip Ratha's picture

  Photo - istockphoto.com
At a meeting with CGAP (Consultative Group to Assist the Poor) colleagues yesterday, I tried to barter my limited knowledge of remittances for their extensive knowledge of mobile technology and its vast potential to serve the poor. It occurs to me that among others, there is one more compelling reason for applying mobile technology to remittance services: the bulk of poor migrants tend to travel short distances, mostly within the country or to neighboring countries just across the border, and a large number of them stay within the calling range of domestic mobile phones. Such migrants typically cannot have bank accounts in the host country, and in any case banks do not want to serve them. These migrants rely on friends (or strangers) going home or hawaladars to send money home. More recently, it appears that they have discovered the idea of transferring mobile phone minutes. M-Pesa in Kenya has done well by capitalizing on this technique. Other mobile providers are also beginning to offer mobile phone remittances.

In Pursuit of the Golden Deer

Naomi Ahmad's picture

This is a true story…

It is the year 2005. 26 young Bangladeshi men are crammed on a small rubber boat. Floating on the vast Mediterranean Sea. The boat's engine had stalled days ago.

10 days without food or water. The men are faced with a choice – death from drinking sea water or the inhuman alternative of having to drink one’s own urine. The pain of watching a brother or a dear friend slowly and painfully starve to death is too much. One by one the men start looking at each other - wondering which part of a dead body would be edible. Another weakly searches for something sharp enough to cut out a chunk of his own flesh, before collapsing dead from hunger and fatigue…

This is what a group of young Bangladeshis faced in 2005, when they embarked on an illegal journey to Spain. Only three survived the ordeal and lived to speak of the horrors of those 10 days.

Migration and Remittances News Roundup: Aug 27, 2010

Ani Silwal's picture

Who am I?

Dilip Ratha's picture

The question of identity lies at the core of the complexity relating to migration. Let's start a conversation on the question, "Who am I?"

Sarah Dadush:

Who am I? Nationality-wise, there is some room for confusion: I was born in Italy, but I am not Italian. I grew up in London, but I am not English. I am French because my mother, who grew up in Morocco, is French, though that mainly happened because her mother is from Algeria. My father is French because he married my mother, but he is from Libya originally. We are Jewish. None of us has ever lived in France. Do I identify with my nationality? Well, my brother and I attended French Lycees in London and in Maryland, and French is my mother tongue. My grandmother and aunt live in France now, and I visit them regularly. That might be the extent of my French-ness. Though I do make an effort to follow political developments in France, I don't participate in local elections, for instance.

Can Migrants Help in Post-Flooding Reconstruction in Pakistan?

Sanket Mohapatra's picture
     UN Photo/WFP/Amjad Jamal

A World Bank report released on July 30 finds that poverty in Pakistan fell by an impressive 17.3 percentage points between 2001 and 2008 (from 34.5 percent in 2001-02 to 17.2 percent in 2007-08). Three out of Pakistan’s four major provinces – Khyber Pakhtunkhwa (formerly NWFP), Punjab, and Sindh – saw significant declines in poverty during this period. The largest fall in poverty was in Khyber Pakhtunkhwa (KP). According to the Bank report “high level of remittances, both foreign and domestic, seem to have facilitated” the decline in poverty in KP.

Pakistan saw migrant remittances reach a record $ 8.9 billion in fiscal year 2010, an increase of 14 percent compared to the 2009 fiscal year despite the global economic crisis (Pakistan’s fiscal year runs from July to June). The World Bank report says “Continued strong growth in worker’s remittances in the past few years has also contributed to improvements in the external current account balance” and “have facilitated improvement in the country’s external position”. 

Poverty fell in Pakistan in 2001-08 partly because of remittances - Migrants can help in reconstruction after devastating floods

Sanket Mohapatra's picture

A World Bank report released on July 30 finds that poverty in Pakistan fell by an impressive 17.3 percentage points between 2001 and 2008 (from 34.5 percent in 2001-02 to 17.2 percent in 2007-08). Three out of Pakistan’s four major provinces – Khyber Pakhtunkhwa (formerly NWFP), Punjab, and Sindh – saw significant declines in poverty during this period. The largest fall in poverty was in Khyber Pakhtunkhwa (KP). According to the Bank report “high level of remittances, both foreign and domestic, seem to have facilitated” the decline in poverty in KP.

     UN Photo/WFP/Amjad Jamal
Pakistan saw migrant remittances reach a record $ 8.9 billion in fiscal year 2010, an increase of 14 percent compared to the 2009 fiscal year despite the global economic crisis (Pakistan’s fiscal year runs from July to June). The World Bank report says “Continued strong growth in worker’s remittances in the past few years has also contributed to improvements in the external current account balance” and “have facilitated improvement in the country’s external position”. 

What are the consequences of the best and brightest emigrating?

David McKenzie's picture

The very name “brain drain” suggests that high-skilled migration can be nothing but bad for developing countries. Indeed, the prospect of a harmful effect of brain drain is often one of the first concerns raised in policy discussions around migration, and every day the news is filled with statements such as “the Philippines is suffering a crippling brain drain”, “brain drain still a big concern” in India;  and that Bangladesh “must stop brain drain to take the country forward”.

However, recently there has been a surge of more optimistic views of highly skilled migration, ranging from theories of “brain gain” in which the prospect of migration in the future induces people (including those who end up not migrating) to get more education; the idea of “brain circulation”, in which migrants are meant to do wonders for their home countries once they return with knowledge and ideas from abroad; and the “create-your-own Silicon Valley” view of diaspora as a source of trade, investment funds, and inspiration.


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