REMITTANCES

1
REMITTANCES

• LEARNING OBJECTIVES
• TO DEFINE REMITTANCES
• TO DESCRIBE THE GLOBAL PATTERN OF REMITTANCES
• TO UNDERSTAND THE VALUE OF REMITTANCES

2
WHAT ARE REMITTANCES?

• remittance is a transfer of money by a foreign
  worker to his or her home country
• Estimates of remittances to developing countries
  vary from IFAD's US301 billion (including
  informal flows) to the World Bank's US250
  billion for 2006 (excluding informal flows).

3
WHAT IS THE PATTERN?
4
WHAT IS THE PATTERN?
5
WHO GETS THE MOST?
6
WHO GETS THE MOST?

• The top recipients in terms of the share of
  remittances in GDP included many smaller
  economies such as Tajikistan (45), Moldova
  (38), and Honduras (25).

7
BENEFITS OF REMITTANCES

• As remittance receivers often have a higher
  propensity to own a bank account,
• remittances promote access to financial services
  for the sender and recipient,
• promote economic development.
• Migrants sent approximately 10 of their
  household incomes these remittances made up a
  corresponding 50-80 of the household incomes for
  the recipients
• The recipients commonly spend the funds on
  necessities such as health, education, food, and
  clothing.

8
BENEFITS OF REMITTANCES

• Invested in businesses and infrastructure E.G a
  10 million hospital in Touba, Senegal, a new
  international airport in Kerala, India, and a
  metal bridge in Jomulquillo, Mexico.
• Help recipient countries cope with economic
  crises because migrants tend to send more money
  back to family and friends during hard times.
• Remittances can also improve a receipt countríes
  creditworthiness.

9
PROBLEMS

• large inflows into small economies can cause the
  domestic exchange rate to appreciate (i.e., the
  domestic currency becomes more expensive relative
  to foreign currency), thereby making tradable
  items, such as cash crops and manufactured goods,
  less profitable
• Security Fears international money transfers
  are increasingly under scrutiny due to fears of
  funding terrorism.
• Susceptible to economic crisis - money transfers
  suffered an unprecedented drop in May, falling
  20 to 1.9 billion (USA to Mexico)

10
PROBLEMS

• governments may develop a dependency on large
  flows of remittances, thus creating a
  disincentive to pursue aggressive economic
  policies to promote sustained development
• Ghost towns phenomenon Central Mexico
• Some analysts argue that remittances in some
  countries contribute to a growing inequality or
  gap, particularly in poor rural areas, between
  the groups of people within a community who
  receive remittances and those who do not.