Remittances
Contents
Remittances,
usually understood as the money or goods that migrants send back to
families and friends in origin countries, are often the most direct and
well-known link between migration and development. Remittances exceed
official development aid but are private funds. Global estimates of
financial transfers by migrants include transactions beyond what are
commonly assumed to be remittances, as the statistical definition used
for the collection of data on remittances is broader (see IMF, 2009).
Also, such estimates do not cover informal transfers. Remittances can
also be of a social nature, such as the ideas, behaviour, identities,
social capital and knowledge that migrants acquire during their
residence in another part of the country or abroad, that can be
transferred to communities of origin (Levitt, 1998: 927).
Infographic
Key trends
After two consecutive years of decline (by 2.6 and 4.1% in 2015 and
2016 respectively), the World Bank estimates that international
remittances to low- and middle-income countries have increased by 8.5
per cent in 2017, reaching USD 466 billion (Ratha et al., 2018). This sum is estimated to grow by 4.1 per cent to reach USD 485 billion in 2018. These funds largely outnumber Official Development Assistance
(ODA). Overall, monetary transfers from migrant workers and others (for
a definition and calculation see below) to all countries worldwide,
including high-income countries, grew by 7 per cent from USD 573 billion
in 2016 to USD 613 billion in 2017 (ibid.).
The top three countries receiving remittances in 2017 in absolute figures are located in Asia: India (USD 69 billion), China (USD 64 billion) and the Philippines (USD 33 billion). The highest inflows in remittances were also reached in Mexico (USD 31 billion), Nigeria (USD 22 billion) and Egypt (USD 20 billion) (Ratha et al., 2018) .
In relative terms, the top 5 countries receiving remittances as a share of gross domestic product (GDP) for 2017 are the Kyrgyz Republic (35%), Tonga (33%), Tajikistan (31%), Haiti (29% which may be due to the large UN presence, see discussion on definition and data sources below), Nepal (29%) and Liberia (27%) (ibid.).
The costs of sending USD 200 in the first quarter of 2018 amounted to about 7.1 per cent of the amount sent (Ratha et al., 2018). This is well above the target of 3 per cent of the Sustainable Development Goal 10.c.1.. Costs are particularly high, meaning above 10 per cent, in many migration corridors in Africa and the Pacific due to high informal flows, lack of competition, and the use of mobile and other new technologies lagging behind. The costs of remittances in South Asia was the lowest, at 5.2 per cent (ibid.).
The top three countries receiving remittances in 2017 in absolute figures are located in Asia: India (USD 69 billion), China (USD 64 billion) and the Philippines (USD 33 billion). The highest inflows in remittances were also reached in Mexico (USD 31 billion), Nigeria (USD 22 billion) and Egypt (USD 20 billion) (Ratha et al., 2018) .
In relative terms, the top 5 countries receiving remittances as a share of gross domestic product (GDP) for 2017 are the Kyrgyz Republic (35%), Tonga (33%), Tajikistan (31%), Haiti (29% which may be due to the large UN presence, see discussion on definition and data sources below), Nepal (29%) and Liberia (27%) (ibid.).
The costs of sending USD 200 in the first quarter of 2018 amounted to about 7.1 per cent of the amount sent (Ratha et al., 2018). This is well above the target of 3 per cent of the Sustainable Development Goal 10.c.1.. Costs are particularly high, meaning above 10 per cent, in many migration corridors in Africa and the Pacific due to high informal flows, lack of competition, and the use of mobile and other new technologies lagging behind. The costs of remittances in South Asia was the lowest, at 5.2 per cent (ibid.).
Definition
Remittances are usually understood as
financial or in-kind transfers made by migrants to friends and relatives
back in communities of origin. However, the statistical definition of
international remittances only partially reflects this common
understanding.
The International Monetary Fund,
the main provider of international remittances statistics based on
Central Bank data, defines remittances as the sum of two main components
in their Balance of Payments Statistics manual:
(1) “Compensation of employees”: This refers to income earned by temporary migrant workers in
the host country, and the income of workers who are employed by
embassies, international organizations and foreign companies (or “the
income of border, seasonal, and other short-term workers who are
employed in an economy where they are not resident and of residents
employed by nonresident entities” (IMF, 2009: 272). It is important to highlight that the entire income of temporary migrant workers
is included in this definition, although the income may never actually
be transferred (at least not entirely) to the origin country as
migrants still have to cover their own living costs. Furthermore, the
salaries of staff employed by foreign employers (such as embassies or
transnational companies) also count as remittances, as these civil
servants, diplomats, military personnel and others are considered
residents of the origin country (IMF, 2009), although most of these
employees may actually not be migrants nor transfer this money anywhere
else.
(2) “Personal transfers”: These are
all current transfers in cash or in kind made or received by residents
(be it migrants or non-migrants) from or to individuals in other
countries (“all current transfers between resident and non-resident
individuals” (IMF, 2009: 273).
Remittances can also be sent within
countries and not just across borders. These are called internal
remittances. Furthermore, not all remittances are of financial or
in-kind nature. Social remittances are defined as “the ideas,
behaviours, identities and social capital that flow from receiving- to
sending-country communities” (Levitt, 1998: 927). Social remittances
include innovative ideas, valuable transnational networks, knowledge,
political values, policy reforms and new technological skills.
Data sources
The World Bank provides
annual estimates of remittances flows globally (and bilaterally), based
on national balance of payment statistics produced by central Banks and
compiled by the IMF. (See definitions of the two main remittances
components above that give examples of what is included and what is
not [Plaza and Ratha, 2017: 65-78]).
Data cover remittances inflows into and outflows from countries. The
latter are less prominent in the migration and development debates but
can be an indication of significant immigrant populations in a country,
especially if they exceed remittances inflows.
The basis for bilateral remittances
estimates are weighted migrant stock data, the weighted income of
migrants based on the per capita income in the country of destination,
and the weighted income in the origin country of the migrant (Ratha and Shaw, 2007: 43).
The World Bank also produces estimates of
remittances’ transaction costs on a quarterly basis. These are “average
transaction costs of sending remittances to a specific country” and are
computed as “the simple average of the total transaction cost in
percentage for sending USD 200, charged by each single remittance
service provider (RSP) included in the Remittance Prices Worldwide (RPW) database
to a specific country”. World Bank researchers derive these estimates
through either undertaking actual transactions themselves to obtain
prices, or by inquiring on the transfer costs to a number of banks and
money transfer operators (Alvarez et al., 2015: 45; IOM, 2017).
Since 2007, the Financing Facility for Remittances (FFR) of the International Fund for Agricultural Development
(IFAD) has published data and statistics on remittances through its
series of Sending Money Home reports based on information from Central
Banks, the IMF, and the World Bank RPW database, among others. The
reports cover central issues affecting remittances from both a global
and regional perspective and provide comparative indicators to measure
the importance of remittances among regions and subregions. The latest report (2017)
includes data and analysis of remittances and migration trends for
developing countries over the past decade as well as the potential
contributions of remittances to the Sustainable Development Goals.
In 2018, IFAD’s FFR launched RemitSCOPE,
an online tool providing regional, subregional and country-level data
and remittance market analyses. It aims to address the fast-changing
market realities in the remittance industry in order to help bring
together the goals of remittance families, as clients, and the
strategies of the private-sector service providers. RemitSCOPE provides
market profiles for 50 countries or areas in the Asia and the Pacific
region but additional regions of the world will be included gradually.
Data strengths & limitations
The World Bank estimates are used to
provide a large dataset covering most countries around the world. This
allows the user to understand trends and the magnitude of transfers,
comparing them to other flows such as Official Development Assistance
(ODA). However, the estimates are far from accurate, due to the methodological challenges outlined below (Alvarez et al., 2015; World Bank, 2016; Plaza and Ratha, 2017).
The balance of payments category of “compensation of employees”, as defined by the IMF, can potentially significantly overestimate migrant
remittances if a country has a large UN and/or embassy presence, and
hosts factories of transnational corporations employing large numbers of
workers. These employees are counted as “non-residents” or migrants in
the country, and all their salaries are recorded as remittances. It is
thus not possible to ascertain whether the official IMF and World Bank
figures are accurate for these countries or considerable overestimates
due to embassy, UN and foreign companies’ staff salaries being counted
as well (Alvarez et al., 2015).
Statistically, migrants who reside in a
country for at least 12 months cannot be distinguished from other
residents who are not migrants as these statistics are based on
residence and not migratory status (Alvarez et al., 2015: 43). In the second component of remittances – “personal transfers” –
the IMF considers if a transfer is made across borders, regardless of
the residency status, nationality or country of birth of a person, as
this information is often not available. The receiver or sender of the
money transfer may thus not only be a migrant but also a citizen with
links to another country, for instance. Thus, remittances can be
conflated with larger sums of money sent by private investors and
diaspora members for business investments, property purchase and other
financial transactions. This leads to the probable overestimation of transfers.
When comparing remittances estimates over
time, it is important to note that the documented growth in remittances
globally in recent years may have actually derived from changes in how remittances are measured, rather than actual increases in such financial flows (Ratha, 2003; World Bank, 2006; Clemens and McKenzie, 2014).
Almost 80 per cent of the increase in recorded remittances during the
period 1990—2010 may be accounted for by changes in measurement, and
only a fifth may reflect changes due to higher numbers of international
migrants and the incomes they are likely to be earning in destination
countries. In addition, both reporting of remittance transactions has
been improved and migrants have increasingly used more formal payment
methods as informal channels decreased as part of anti-money laundering
measures (Ibid.).
It is also important to keep in mind that
IMF and World Bank estimates focus on remittances transferred through
official channels, such as banks. Not all small transactions by migrants
conducted via money transfer operators (such as Western Union), post
offices, mobile transfer companies (like M-Pesa in Kenya) are included
in all the countries, neither are informal transfers (such as via
friends, relatives or transport companies returning to the origin
community), depending on the sources of data used by different central
banks. As these transfers that are not systematically included in
balance of payments can be significant in volume, in particular in the
context of South-South corridors, the official figures are likely to underreport the phenomenon by as much as 50 per cent (Irving et al., 2010; World Bank, 2011).
Due to the largely unknown scope of informal transfers, some countries,
in particular in sub-Saharan Africa, do not report remittances figures
to the IMF in their balance of payments. Data on remittances also vary
from country to country due to differences in the availability of data,
national legislative and policy frameworks, using citizenship instead of
residency status in the definition, and for the simplification of
processing the data (Irving et al., 2010; World Bank, 2011; Plaza and Ratha, 2017).
The extent of the over and underestimates are, however, unknown and difficult to calculate (IOM, 2017). Specific,
representative migration and remittances surveys can provide more
detailed, and reliable information at the national or local level (World
Bank, 2011). This also includes commodity transfers, such as consumer
items, that are not part of the official recordings but that can be
significant, especially in South-South contexts (Melde and Schicklinski, 2011).
Bilateral remittance estimates are prone to the limitations of data on migrant stocks described here.
The calculation is based on the gross national income (GNI) per capita
in the origin country of the migrant and thus cannot account for GNI
being higher there as the assumption is that migrants move to countries
with higher incomes. The World Bank further acknowledges issues around
not being able to attribute a transfer to a specific country, especially
when passed through an international bank (Ratha and Shaw, 2007). It is thus important to underline that these are calculated estimates and do not represent accurate figures (Alvarez et al., 2015).
The testing of remittance channels through fictitious transfers of money by World Bank analysts entails significant limitations as well. Only a few corridors are monitored.
Differences in transaction costs based on the amount sent, with the
higher amounts likely to cost less to send, distorts
the representativeness of relevant data. Costs may also change quickly,
meaning the reported transaction costs rapidly become outdated (Alvarez et al., 2015; IOM, 2017). Nonetheless, estimates of transaction costs can help to monitor progress towards the Sustainable Development Goal (SDG) target of reducing sending costs to 3 per cent of the amount remitted.
Further reading
| International Monetary Fund (IMF) | |
|---|---|
| 2009 | Balance of Payments and International Investment Position Manual, 6th edition (BPM6), IMF, Washington, D.C. |
| Alvarez, P.S. et al. | |
| 2015 | ‘Remittances: How reliable are the data?’, Migration Policy Practice V(2): 42-46. |
| Plaza, S. and D. Ratha | |
| 2017 | ‘Remittances’, in Global Migration Group (eds.) Handbook for Improving the Production and Use of Migration Data for Development. Global Knowledge Partnership for Migration and Development (KNOMAD), World Bank, Washington, D.C.: 65-78. |
| Ratha et al. | |
| 2018 | Migration and Remittances: Recent Developments and Outlook. Migration and Development Brief, No. 29, April 2018. World Bank, Washington, DC. |
| World Bank | |
|
2006
|
Global Economic Prospects 2006: Economic Implications of Remittances and Migration. Washington, DC.
|
| 2011 |
‘Data Notes’, The Migration and Remittances Factbook 2011, Migration and Remittances Unit, World Bank, Washington, D.C.
|
| 2016 | Migration and Remittances Factbook 2016. World Bank, Washington, D.C. |
| Irving, J., S. Mohapatra and D. Ratha | |
| 2010 | ‘Migrant Remittance Flows. Findings from a Global Survey of Central Banks’, World Bank Working Paper No. 194, World Bank, Washington, D.C. |
| Clemens, M. A. and D. McKenzie | |
|
2014
|
Why Don’t Remittances Appear to Affect Growth? CGD Working Paper 366, Center for Global Development, Washington, DC.
|
| Ratha, D. | |
| 2003 |
“Workers Remittances: An Important and Stable Source of External Development Finance.” Global Development Finance, World Bank, Washington DC.
|
| 2007 |
“Leveraging Remittances for Development.” Policy Brief, Migration Policy Institute, Washington, DC.
|
| Ratha, D. et al | |
|
2011
|
“Workers Remittances: An Important and Stable Source of External Development Finance.” Global Development Finance, World Bank, Washington DC
|
| International Fund for Agricultural Development (IFAD) | |
| 2017 | Sending Money Home: Contributing to the SDGS, one family at a time. |
| 2015 | Sending Money Home: European flows and markets. |
| 2013 | Sending Money Home to Asia: Trends and opportunities in the world's largest remittance marketplace. |
|
Funkhauser, E.
|
|
| 2012 |
‘Using longitudinal data to study
migration and remittances’, in: Vargas-Silva, C. (ed.) Handbook of
Research Methods in Migration. Edward Elgar: Cheltenham, UK and
Northampton, MA, USA: 186-206.
|
|
Melde, S. and J. Schicklinski
|
|
| 2011 | |
| Levitt, P. | |
| 1998 |
‘Social Remittances: Migration Driven
Local-Level Forms of Cultural Diffusion’, International Migration
Review, Vol. 32(4): 926-948.
|
Last updated on
24 October 2018
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