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Financail watch:Migrant workers’ remittances can boost development
2005-08-10 07:27:53
By Theo Mushi
Many developing countries are striving to improve their investment climates to attract much needed foreign exchange to stimulate economic growth rate of various sectors of their economies.
A recent study by the IMF has noted that little is known about the economic effects of remittances of workers in other countries to the economies of developing countries.
Most developing countries have their nationals working in developed countries or other developing countries.
The study underlines that workers remittances are a large and rapidly growing source of foreign exchange for many developing countries.
Tanzania has a number of its citizens working in USA, UK, Middle East, South Africa, Zimbabwe, Botswana, Namibia and Angola.
The study notes that remittances flow to developing countries defined as transfers made by migrant workers to family and friends in their home country has grown steadily over the past 30 years.
In 2003, remittances flows for 90 developing countries were analysed by the World Bank.
The analysis in the World Economic Outlook showed that remittances amounted to about $ 100 billion.
This is said to be the equivalent of 50 percent of total capital flows or 1.4 percent of aggregate GDP.
The study notes that for many developing countries, remittances constitute the single largest source of foreign exchange and exceed export revenues, official aid foreign direct investment and other private capital inflows.
Taking the example of Mexico, it is shown that it is currently receiving about $ 15 billion in remittances or transfers a year.
In smaller countries, it is noted that many Caribbean countries’ remittances often exceed 10 percent of GDP.
On the sending side, the USA remains the main source of remittances providing over $ 30 billion in 2003.
It is noted that flows from the United States have almost quadrupled over the past 15 years.
Overall remittances have proved resilient in the face of economic down turns and have displayed greater stability and lower pro-cyclical trends as compared to exports or private capital flows.
It is expected that over time, remittances are also likely to continue growing as the population in industrial countries continues to age, and as pressures for migration from developing to advanced countries intensify.
It is noted that the G8 is now having an interest in remittances and their impact on developing countries.
Remittances are increasingly viewed as a relatively attractive source of external finance for developing countries.
They can foster development and smooth financial crises.
It is asserted that there is concern that remittances can be abused to launder money and financé terrorism.
The World Economic Outlook found clear evidence that remittances can play an important role in boosting growth, contributing macro-economic stability, mitigating adverse shocks, and reducing poverty in developing countries.
The World Economic Outlook also noted that remittances allow households to maintain and step up expenditure on food consumption.
They are often used to finance children’s education and to set up small businesses.
It is observed that unlike official aid, or natural resource revenues, remittances typically do not have serious systemic adverse effects on a country’s competitiveness.
It noted that given these benefits, what can recipient authorities do to seize salient opportunities and meet attendant challenges.
Several key policy challenges have been identified that need to be tackled.
These include reducing transaction costs ensuring that macro-economic and exchange rate policies do not discourage remittances.
Others are the need to reduce barriers to entry into the remittance market.
There is also a need to make certain that regulatory and supervisory frameworks are adequate but not onerous.
It is vital to ensure that remittance service providers are appropriately regulated and supervised to reduce the potential risks of money laundering, terrorist financing, or consumer fraud.
Excessive onerous regulations could drive remittances flow further underground.
Remittances are just one of the many channels through which rising global migration flows affect developing countries’ welfare.
While workers remittances may be beneficial, the loss of labour, especially human capital, usually known as the brain drain, may hamper the development prospects of those left behind.
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