Workers' remittances, current private transfers and compensation of employees in the German Balance of Payments Statistics

1
Workers' remittances, current private transfers
and compensation of employees in the German
Balance of Payments Statistics
2
Background

• The main source for statistics on international
  remittances is the Balance of Payments (BOP)
• In this regard, BOP compilers have been faced
  with an increasing interest in remittance data in
  the last decade
• This increasing interest, however, puts some
  pressure on compilers as data on remittances been
  judged by users as less reliable compared to
  other BOP items.
• Especially the lack of comparability (usually
  remittance credits exceed debits) indicate
  differences in the coverage and compilation
• What are the reasons for these differences?

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Background

• Generally, the multitude of channels used for
  sending remittances make the collection of data
  difficult.
• The channels vary from country to country, from
  remitter to remitter, from the financial system
  in the sending and receiving country, the
  convenience and cost.
• Furthermore, the small size of the individual
  transactions makes it very difficult to detect
  remittances in the frame of the general BOP
  collection system.
• It should be also mentioned, that a certain lack
  of interest in developed countries in this
  sub-item of the BOP, which is of minor importance
  for them compared to other items, may contribute
  to some of the inconsistencies

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Outline

• 1. Current data sources and data published for
  the components of the future items "personal
  transfers" and "personal remittances"
• a) Workers' remittances
• b) Current private transfers
• c) Compensation of employees (net)
• 2. Weaknesses of the current system
• Measures to improve the current statistic
• 4. Compiling and presenting remittance data

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1 a) Workers' remittances

• General remarks
• The collection of data on workers' remittances is
  embedded in the general reporting requirements.
  These requirements stipulate that all payments
  above the relevant reporting threshold (at
  present 12,500 EUR) must be reported to the
  Bundesbank.
• In Germany, it was assumed throughout the years
  and regardless of the respective amount of the
  threshold (DM 500, DM 1,000, DM 2,000 etc.), that
  remittances of migrant workers to their home
  countries exceeded the threshold only in rare
  cases. Accordingly, a method was implemented to
  estimate these flows for the German Balance of
  Payments.

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1 a) Workers' remittances

• Sources
• Monthly collective reports by selected banks.
  Some of them are branches of foreign banks
  (primarily Turkish but also from other countries
  like the Philippines). The reports comprise cash
  deposits with a beneficiary abroad
• In addition, some banks report monthly collective
  reports about cash deposits or transfers of
  foreigners into accounts held by foreign banks
• Data from the Federal Employment Office about the
  number of employed and unemployed foreigners
  subject to social insurance contributions
  (corrected by cross-border and seasonal workers).
• To assure that the mentioned bank reports contain
  also information about cross border payments
  below the threshold, special agreements between
  the banks and the Bundesbank were made.

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1 a) Workers' remittances

• Calculation method
• To differentiate between workers' remittances and
  payments for other reasons, percentage rates for
  each receiving country are applied to the amounts
  reported in the case of payments to accounts
  abroad.
• Remittance flows per capita are calculated by
  dividing the reported values by the number of
  non-residents reported by the labour agency.
• It is assumed, that every (registered) guest
  worker in Germany remits a minimum amount of EUR
  1,200 and a maximum amount of EUR 2,000 to his
  home country each year.
• The average amount per capita is calculated on
  the basis of bank reports and compared with the
  minimum/maximum amount. If the reported amount
  lies in between the min/max amount, the reported
  value per capita is used. If the reported amount
  is below/above, the min/max amount is used.
• Multiplied with the number of registered persons
  per nationality yields to the total amount per
  country.

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1 b) Current private transfers (household
to household)

• General remarks
• Current private transfers are collected via the
  regular collection system, i.e. only payments
  exceeding the exemption threshold of EUR 12,500
  are reported.
• For transactions below the threshold an
  estimation method is applied, however this method
  was not specifically developed for private
  transfers.
• Depart from this estimation, no other
  corrections/estimations are made.

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1 c) Compensation of employees

• General remarks
• Similar to workers remittances, salaries paid are
  normally below the respective threshold and
  therefore not captured by the reporting system.
• Even if a single transaction exceeds the
  threshold, reporters are often not aware about
  their obligation to report because, from their
  point of view, the payments often take place
  between two resident accounts (for instance,
  wages of German employees paid by foreign
  embassies).
• Hence, the Bundesbank uses indirect sources to
  estimate compensation of employees gross and net.

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1 c) Compensation of employees

• Sources
• Statistics of the Federal Employment Office
  (number of cross border/ seasonal workers and the
  respective country of the employee)
• Statistics of the Federal Statistical Office
  (quarterly calculation of average gross income
  (credits/debits for neighboring countries)
• Statistics of the Federal Ministry of Finance
  (compensation of German employees working for
  foreign military forces stationed in Germany)
• Statistics of the Federal Foreign Office
  (compensation of foreign employees working in
  German embassies abroad)
• Annual reports of International Organizations
  (compensation of German employees)
• Partner country data for receipts of German
  workers employed in CH, LUX, NL, FR

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1 c) Compensation of employees

• Calculation method
• FSO calculates an average income, separately for
  cross border and seasonal workers. The average
  wage is multiplied with the number of employees
  (foreigners in Germany, Germans abroad). To this
  amount the contribution of the employer to social
  insurance is added. For German receipts from CH,
  LUX, NL and FR we use partner country
  information.
• To come to the net income, the total contribution
  to social insurance and taxes on income is
  deducted from the gross value. Finally, a
  correction for travel is made by the Bundesbank.
• Regarding income received from foreign military
  forces and international organizations, no
  additional corrections are made. In the case of
  income paid/received by embassies in
  Germany/abroad, information from the national
  accounts are used.

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2 Main weaknesses

• Workers remittances
• Money flows through informal channels and by
  illegal workers from countries which are not
  included in the database of the Federal
  Employment Office are not reflected adequately.
• Assumed minimum/maximum amount has not been
  proofed
• Estimation method does not take into account the
  propensity to remit.
• Current data from the banks do not allow to
  distinguish in all cases for what purpose the
  actual payment is made, e.g. for basic needs of
  relatives or for other purposes like deposits in
  own accounts.
• No information about workers remittances credits

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2 Main weaknesses

• Current private transfers
• Data source does not assure an adequate coverage
  of all private transfers.
• The breakdown by country is distorted as
  only the information of reported payments above
  the threshold is used.
• Compensation of employees
• Germans who work abroad for more than one year
  are treated as residents and their salaries are
  included undistinguishable in compensation of
  employees.

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3 Measures to improve the current statistics

• Remittances
• Use of data from money transfer companies
  (Western Union etc.).
• Currently, the Bundesbank is checking the
  usefulness of aggregated information provided to
  us by the Federal Financial Supervisory
  Authority.
• Results
• Information from this source could be
  another piece in the puzzle, for instance
  regarding the country breakdown, but is not the
  final solution.
• However, it is planned to use this source as a
  starting point to estimate workers remittances
  credits.

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Measures to improve the current statistics

• With view to future definition of private
  transfers
• It will be necessary to collect more detailed
  sector information to capture household to
  household transfers.
• Problems
• - The sector in the receiving country is not
  always exactly known by private declarants (how
  would a private person sectorise a payment via a
  non profit organisation?) ? distortion of the
  results
• - Second, political pressure to reduce the
  statistical burden for private persons. This
  could result in a complete exemption of private
  person from all or most of their reporting
  obligations ? use of secondary information may
  result in less quality and comparability

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Collection approaches to obtain data(a)
Transaction Reporting

• Remittances transferred using international
  networks, typically from the banking system.
• Data can be collected from banks using
  international transaction reporting systems
  (ITRS) based on the information given by the
  sender in the payment order.

COUNTRY A (sender)
COUNTRY B (receiver)
BANK A
ACCOUNT
ACCOUNT
receiver
sender
ACCOUNT
ACCOUNT
ACCOUNT
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Collection approaches to obtain data(a)
Transaction Reporting

• Strengths
• Timely information as data are registered by ITRS
  at the moment when a transaction is settled
• Low cost as data on remittances are essentially a
  by-product of the cross border settlement.
• Weaknesses
• Does not cover international payments outside the
  banking system or transfers in kind.
• Depending on changing political environment (e.g.
  discussion in the EU on raising the reporting
  threshold to EUR 50.000 to reduce the reporting
  burden for banks in the frame of the Single
  European Payments Area (SEPA)).

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Collection approaches to obtain data(b) Direct
Reporting

• Remittances sent by using Money Transfer
  Operators (MTO)
• MTOs tend to aggregate and net settlement
  payments. As such, direct reporting would seem to
  be an appropriate method for collecting detailed
  information about individual transactions.

COUNTRY B (receiver)
COUNTRY A (sender)
Central Clearer of MTO
receiver
sender
AGENT of MTO
AGENT of MTO
Information sender, receiver, amount, etc.
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Collection approaches to obtain data(b) Direct
Reporting

• Strengths
• Low costs, because the number of reporters is
  normally not large.
• Reliable as all relevant information is available
  and full coverage of remittances routed through
  the MTOs.
• Weaknesses
• No information about remittances sent through
  other channels or transfers in kind
• MTOs cannot assure that transactions other than
  remittances are excluded.

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Collection approaches to obtain data(c)
Household surveys

• Remittances sent outside the formal sector
• Especially if remittances sent via informal
  channels, the appropriate way to collect
  remittance data is asking senders and receivers
  directly.

COUNTRY A (sender)
COUNTRY B (receiver)
BUS COMPANY
busdriver
busdriver
receiver
sender
Information sender, receiver, amount etc.
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Collection approaches to obtain data(c)
Household surveys

• Strengths
• Direct control over information collected.
• Possible to collect data sent through formal and
  informal channels.
• Weaknesses
• Costly and methodologically demanding.
• Under-reporting because information requested are
  considered sensitive by the respondents.

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Collection approaches to obtain data(d) Data
Models

• Direct reporting (asking banks, MTOs,
  senders/receivers) is difficult and impractical
  for a number of reasons.
• If direct measurement is no option, models based
  on secondary data could be used to estimate
  remittance.

Direct data collection
BoP COMPILER
BANK
MTO
SENDER
RECEIVER
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Collection approaches to obtain data(d) Data
Models

• Strengths
• Estimations are definitely able to cover formal
  and informal channels.
• Low costs as secondary data (eg administrative
  data) is available at no extra cost.
• Weaknesses
• Input data can be weak (e.g. if migrant
  population is partly estimated).
• Assumptions about variables which influence the
  propensity to remit may be problematic (problem
  to test or verify them in practice) and fixed
  over time.

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Further guidance

• Given the multitude of channels and possible
  approaches that are available for
  collecting/estimating remittance flows, the
  compilation guide of the Luxembourg Group further
  contains a practical four-step approach to
  develop a country-specific data development plan
• Step 1 Understanding the current situation.
• Step 2 Evaluation of current data collection
  system.
• Step 3 Prioritization.
• Step 4 Improvement and Expansion of data by
  channel.

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Further guidance

• Besides providing definitions, compilation
  guidance and proposals how to improve data the
  guide also reviews good practices in
  disseminating remittance data.
• As a general rule, the DQAF of the IMF gives good
  guidance on diverse aspects of dissemination
  practices
• Further recommended is the publication of
  bilateral data. However, it is recognized that
  the collection of bilateral data is challenging
• The dissemination of bilateral data should
  therefore be part of a longer term program and
  should focus on relevant corridors (pairs of
  countries with large flows)