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Harnessing Remittances for Development

International remittances to developing countries have grown rapidly over the past decade. Remittances[1] received by developing countries accounted for about one third of export earnings, more than twice private capital flows, almost 10 times official capital flows and more than 12 times official transfers in the recent 10 years.  

While the recent economic crisis has seen a moderation in remittance flows, they have remained far more stable than other categories of private capital flows. In some countries with a long history of migration, such as El Salvador and Mexico, governments have adopted comprehensive strategies to harness remittances for development which are aimed at increasing the inflows of remittances channeled through the banking system, and directing them towards financing development projects. These initiatives along with fiscal and institutional incentives have resulted in an increase of inflows remitted and channeled to finance development and have helped to create jobs, reduce illiteracy rates, alleviate poverty and improve population well-being, and thus contributed to achieving the MDGs. They can also offset the current reduction in foreign direct investment experienced by many LDCs.

Nine labor-exporting Arab states, namely Algeria, Egypt, Jordan, Lebanon, Morocco, Sudan, Syria, Tunisia and Yemen receive significant remittances inflows on a regular basis. In 2010, total remittances received by these countries amounted to nearly $36.3 billion, or 5.5% of their combined GDP. More precisely, remittances amounted for $2 billion in Algeria, $7.7 billion in Egypt, $3.8 billion in Jordan, $8.2 billion in Lebanon, $6.4 billion in Morocco, $3.2 billion in Sudan, $1.5 billion in Syria, $2 billion in Tunisia, and $1.5 billion in Yemen. In fact, Lebanon, Egypt and Morocco ranked in the top 20 list of remittance recipients worldwide. In several countries, remittances accounted for a significant share of GDP where Lebanon and Jordan ranked 6th and 11th among the worldwide top 20 recipients in terms of the share of remittances in GDP with a share of 22% and 16%, respectively. These are in addition to informal transfers outside the banking sector and transfers in the form of household items.  The absence of banking services on a large scale in rural areas led to greater dependence on informal means of sending remittances, which limits the efficient use of those remittances and their impact on the economy and development. Importantly, remittances constitute a stable source of external capital inflows that account for a large part of foreign exchange in some countries such as in Egypt, Jordan, Lebanon, Morocco, and Yemen. Remittances have thus a substantial socio-economic impact in these countries. [2]

Despite the large amounts of remittances received by labor-exporting Arab states, three major challenges persist:  (i) absence of national strategies and policies to channel remittances to development, (ii) the relatively weak financial and institutional infrastructure supporting remittances, and (iii) the lack of sufficient data/information on workers’ remittances.

None of the nine target countries in this project has a well-defined policy oriented towards using remittances as an external source for financing development. The absence of such a policy is a missed opportunity to leverage remittances to development and the reduction of regional disparities.   Furthermore, remittances transferred through informal channels are larger than remittance sent through the banking channels since transfer fees through the banking system are relatively high.  In addition, there is weak penetration of the banking system in rural and remote areas. The inadequate infrastructure has two main consequences: it diminishes the amount of remittances that expatriates send and reduces the development impact of what is sent.  Finally the lack of consistent data on the value of workers’ remittances in a number of Arab states is a handicap to policy makers. In particular, no data is available on the remitters’ characteristics, the channels used to transfer money, the use of the transferred money by recipients (consumption, investment, etc), and the impact of the remittances on aggregate economic variables (gross national product, employment, imports, inflation, etc). This informational deficiency prevents policy makers from designing and implementing policies targeting better use of remittances for development purposes.

The 2002 Monterrey Consensus, followed by the 2008 Doha Declaration on Financing for Development, recognized the importance of national ownership of development strategies to mobilize sufficient resources in developing countries. In particular, the second chapter of the Monterrey Consensus calls upon labor-exporting countries to better use remittances’ inflows to enhance their development impact.

Following the success of ESCWA in implementing the DA project on FDI statistics and policies (2002-2006) that enhanced the capabilities of government officials in nine member countries to mobilize international financial resources, this project intends to implement a set of activities to further strengthen the skills of concerned parties (government officials and bankers) to raise more resources for development finance.

The International Organization for Migration (IOM) is implementing a number of projects in some North-African Arab countries (Egypt, Morocco and Tunisia) with the objective of harnessing migration for development. ESCWA will thus benefit from these ongoing projects in terms of country-specific data, experience, and information. In addition, by enlarging the covered countries and focusing on the remittances as an external source for development finance, ESCWA will expand and complement the IOM’s recent endeavors.

The project will also constitute a follow up to ECA North Africa's analytical work on "Migration and Development in North Africa" and on "Workers Mobility in Maghreb Countries" and a follow up to the recent EGM organized by ESCWA on “The role of workers’ remittances in financing for development”. In addition, DESA/FfDO has in recent years devoted greater attention to monitoring remittances and analyzing their impact.

Brief description about the project:

The utilization of remittances inflows to enhance development in labor-exporting Arab states, confronts three major persistent challenges:  (i) the absence of national strategies and policies to channel remittances to development, (ii) the relatively weak financial and institutional infrastructure supporting remittances, and (iii) the lack of sufficient data/information on workers’ remittances.

The main objective of the project is to strengthen capacities of government officials to formulate and adopt strategies, policies and programmes to enhance the impact of workers’ remittances on development in selected Arab states.

To achieve this objective, this project intends to implement a set of activities to provide target beneficiaries (bankers and government officials at Ministries of Investment, National Economy, Planning, International Cooperation and Emigration Affairs) with the skills and tools to channel more resources towards development finance.   

Six qualitative studies will provide the conceptual foundation to support member states determine practical policies and programmes to enhance the impact of remittances in financing for development.  The studies will help policy makers identify a number of ways to facilitate the flow of remittances through the domestic financial system. They will build upon the results of the recent reports and studies carried out by IOM, ECA, DESA and ESCWA in the area of workers’ remittances.

Based on the results of the studies, concerned entities will participate in two sub-regional seminars to come up with practical recommendations on policies and programmes for enhancing the development impact of workers’ remittances. The seminars will target the technical capabilities of key official in selected member states in designing and implementing policies related to migration.

Central bankers and financial institutions officials will take active part in nine national workshops to enhance their technical capabilities in designing new financial products and providing innovative means to increase the penetration rate of financial institutions operations in rural and remote areas and to improve the financial infrastructure supporting remittances.

To enhance the technical capabilities of central banks and statistical bureaus in collecting, managing and disseminating data on workers’ remittances in Syria, Sudan and Yemen, one sub-regional workshop will also be organized. The workshop will benefit from the expertise of other states in the region particularly Egypt and Jordan which maintain an excellent database for workers’ remittances.

[1] Remittances are classified as current private transfers from migrant workers resident in the host country for more than a year, irrespective of their immigration status, to recipients in their country of origin.

[2] Online World Bank Database