Remittances: Statistical Accuracy and Financial Benefits

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Remittances Statistical Accuracy and Financial
Benefits

• Anna Prokhorova, World Bank,
• MiRPAL Coordinator for Russia
• Almaty, Kazakhstan
• October 31 November 1, 2013

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Outline

1. Global and regional outlook of remittances flows
2. Methodology and sources of data
3. Cost of remittances
4. General Principles of International Remittances
   System
5. Financial literacy factor
6. Remittances in MiRPAL countries

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1. Global and regional trends in remittances flows

• World Bank estimates

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Migration and Remittance Flows Recent Trends
and Outlook, 2013-2016

• 550 billion
• remittance flows may reach worldwide in 2013 and
  over 700 billion by 2016.
• 414 billion
• remittance flows to developing countries are
  expected to reach in 2013 (up 6.3 percent over
  2012), and 540 billion by 2016.
• 43 billion
• remittance flows estimated for 2013 to the
  developing countries of Europe and Central Asia
  (ECA) region, thus projected to have increased by
  10.8 percent

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Top-10 remittance recipients in the world

• Top 10 recipients of remittances. of GDP, 2012

• Top 10 recipients of remittances. US billion,
  2013e

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2. Measuring Remittances

• www.imf.org

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Methodology

• Remittances cross-border person-to-person
  payments of relatively low value.
• Remittances compensation of employees
  personal transfers (Balance of Payment Manual
  6th edition)
• Compensation of employees refers to the income
  of border, seasonal, and other short-term workers
  who work in an economy where they are not
  resident, and to the income of resident workers
  who are employed by a nonresident entity.
• Personal transfers are defined independently of
  the source of income of the sending household,
  the relationship between the households, and the
  purpose for which the transfer is made.

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Sources of data

• International Transaction Reporting System (ITRS)
• Bank reporting
• MTOs
• Post offices
• Findings of household surveys
• Indirect sources (e.g. migration data)
• Bilateral data
• Modeling

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3. Cost of Remittances

• www.remittanceprices.worldbank.org

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Cost effectiveness

• US 16 bln a year
• can be saved up if cutting remittances prices
  by at least 5 percentage points
• 5x5 Objective
• was endorsed in July 2008, at LAquila summit,
  by G8 in order to achieve in particular the
  objective of a reduction of the global average
  cost of transferring remittances from 10 to 5
  in 5 years

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Global Average Total Cost for sending USD 200
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Distribution of Average Total Costs ( of
corridors)
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Total average cost in G8 countries, Q3,2013
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Cost by remittance service provider (RSP)

• In about 79 of the countries surveyed,
  commercial banks and to a lesser extent
  international MTOs are considered the most
  relevant RSPs the role of NBFIs and mobile phone
  providers is still very limited.
• RSPs require a license in 66 of the countries.
• Survey results show that cash and current account
  transfers are regarded as the most relevant
  payment instruments for both sending and
  receiving remittances.
• In only 56 of the countries RSPs are required to
  disclose all transaction details before the
  transaction itself is performed.

RSP TYPE COST OF TRANSFER,
Commercial banks 12,86
MTOs 7,36
Post offices 5,44
Global average 8,93

• Average cost of sending USD 200 or the local
  currency equivalent, Q3, 2013

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4. General Principles for International
Remittances Services

• World Bank/Bank of International Settlements

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(No Transcript)
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5. Financial literacy factor

• Based on World Bank research

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The Impact of Financial Literacy Training for
Migrants (2012)

• Results of a randomized experiment designed to
  measure the impact of providing financial
  literacy training to migrants in New Zealand and
  Australia countries which had recently launched
  a remittance cost comparison website
  (www.sendmoneypacific.org) for sending money to
  the Pacific Islands.
• The case for providing financial literacy
  training for migrants needs to rest on other
  criteria than the financial savings from cheaper
  remittances, such as the improvements in their
  capabilities from being more informed customers,
  and the potential savings from other aspects of
  financial management, such as choice of debt
  levels and instruments.
• Experimenting further with adding additional
  content on budgeting, saving, and debt management
  seem fruitful areas for policy refinement in this
  area.
• No big changes in ultimate outcomes migrants
  avoid switching to more expensive or less
  transparent remittance channels, but do not
  change the amount or frequency of remitting.

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Who You Train Matters Identifying Complementary
Effects of Financial Education on Migrant
Households (2012)

• A survey conducted in Indonesia among the migrant
  worker and the migrant workers household.
• The study finds strong and statistically
  significant impacts of financial literacy
  training given to both the migrant and her family
  on savings behaviors and outcomes, in contrast to
  much of the existing literature.
• The study also finds that the same treatment
  group is less likely to have taken out a loan in
  the past six months.
• The training does not change either frequency or
  the amount of remittances received, but does
  change how household use this money.
• They are more likely to keep financial records,
  and as a result of these knowledge and behavior
  changes, accumulate more savings and rely less on
  loans.

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6. Migration and Remittances in ECA region

• MiRPAL countries
• http//peoplemov.in/
• http//www.torre.nl/remittances/

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Top 10 remittances recipients in Europe and
Central Asia region (ECA)

• Top 10 ECA countries receiving remittances. US
  billion, 2013e

• Top 10 ECA countries receiving remittances, share
  of GDP, , 2012

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Cost of sending remittances to MiRPAL countries

• It is important to note that Russia has a unique
  environment where cross border remittances are
  mostly conducted in the same currency and
  possible additional cost associated with a
  currency exchange are not known.
• The Russian market also benefits from relatively
  low fees charged by the providers when compared
  to the other G8 countries.

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Remittance data in MiRPAL countries

• Cholpon-Ata, Sept 10-11 2012, eight countries
• Methodology BPM6 (Armenia, Belarus, Russia,
  Ukraine in 2012)
• Sources of data ITRS (all), official statistics,
  administrative sources (5 countries), household
  surveys (TJ, AR,ML), interviews (Russia,
  Kazakhstan)
• Reasons of data discrepancies respondents
  coverage (local RSPs), different thresholds,
  different exchange rates, geographical coverage
• Next steps Kyrgyz Republic remittance module to
  be included in household survey, Kazakhstan and
  Moldova to introduce BPM6 in 2014

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Impact of Remittances Armenia case

• In Armenia remittances contribute to economic
  growth (Granger causality test) and the cycle of
  remittances activity coincides with GDP cycle.
• Results of econometric analysis showed, that in
  the short run remittances have positive impact on
  economic growth in Armenia. In the long run the
  impact is negative.
• Moral hazard households receiving remittances
  tend not to work. Regression analysis shows that
  growth of remittances reduces employment in
  Armenia
• Reduction of workforce because the growth of
  remittances is mostly due to migration in
  previous years, which is the evidence of
  workforce reduction, particularly - of
  high-quality workforce
• Occurrence of Dutch disease remittances
  contribute to occurrence of Dutch disease
  increase of the real effective exchange rate
  reduces competitiveness and export
• There are investments, but they are not
  productive according to the Survey in Armenia
  only 12 of households are engaged in business.
  The main part of remittances at the peak of
  economic growth was focused on housing
  development
• Risk of creating a trap for economic policy.

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Indicators to capture remittances impact on
development

• Channels used to transfer money (transferred
  through regular channels like banks, MTOs)
• Use of remittances
• -improving living conditions,
• -education
• -health
• -invested/saved
• Sources of data Household surveys

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• Thank you!
• aprokhorova_at_worldbank.org