International Trade

By Manel de Silva

Remittances: Maximising the development impact

An UNCTAD Group of Experts meeting which took place last week is of relevance to Sri Lanka, which depends on migrant workers’ remittances as one of the top foreign exchange earners.

The topic under discussion was ‘Impact of Remittances on Poverty in Developing Countries’. The purpose of the experts meeting was to explore ways and means to maximise the development impact of remittances by:

*    Reviewing the recent trends in migration and remittance flows.

*    Analysing the impact of remittances on poverty reduction and development in home countries.

*    Identifying policies and measures that can channel saved remittances and other Diaspora funds to better serve the developmental needs of home countries.

*    Addressing barriers to remittance flows, including barriers to migration which impede the expansion of future remittance flows.

The report of the expert meeting is to be submitted at the next session of the Trade and Development Committee of the UNCTAD.

UNCTAD had prepared a background paper for this meeting, which was a study on the contribution of migrants to development and aimed at assisting policymakers in better harnessing the contribution of migrants’ remittances to development and poverty reduction by investing in infrastructure and productive capacity.

Describing the positive impact of such remittances, the report states that remittances have become significant private resources for households in developing countries. They are more predictable as compared to other financial flows and more importantly they are counter cyclical providing buffer stocks against economic shocks in conflict and post conflict situations.

Remittances can be crucial to survival, sustenance, rehabilitation and reconstruction in providing primarily for household livelihoods as they are also spent on general consumption items in local communities.

A fair share of such expenditure is spent on construction of houses, healthcare, education and savings in financial institutions, thereby generating employment in these service sectors. Such remittances represent one of the largest sources of external private finances in developing countries for developing countries.

Another positive aspect highlighted in the report is the contribution of migration to economic growth and development by serving as a channel for the transfer of skills and migration and the establishment of community and cultural networks.

Migrants contribute to the home country in many ways while contributing to the host country by filling the demand and supply gap. Thus, considering the importance of migration as pro-development, it is also important to maximise the benefits and minimise the costs associated with migration by central, national and international policies.

Progress is needed at all these levels in sending, transit and receiving countries in promoting greater mobility that better manage migration flows and promote circular migration to help prevent brain drain and maximise the benefits of temporary migration.

The report also analyses the potential of migrant Diaspora in encouraging remittances and reducing the informal channels of remittances. Almost all developing countries have Diaspora where the members are spread out in different vocations.

They could be involved in discussions especially with regard to voluntary remittance schemes, sustainable returns and possible investment of remittances. Policy intervention through national policies and international cooperative mechanisms can be critical in increasing beneficial effects of temporary migration and associated remittances.

The importance of both origin and destination countries to facilitate easy and speedy flows of remittances and the possibility of having special incentive schemes including higher interest rates as is in place in certain developing countries such as India, Pakistan and Bangladesh are stated in the report.

The report’s conclusion is that efforts to increase the volume of remittances should also be supported by efforts in channelling the remittances to more productive areas for sustainable reduction in poverty.

Apart from providing food security to households, if remittances are used for improving the skills and productivity of the recipients, they will have sustainable impact on the improvement of standard of living.

Families receiving remittances should be allowed to use future remittances as collateral for procuring loans for education, house building or other activities such as procuring fertiliser and machinery for farming.

The recommendations of the Group of Experts might give some more positive ideas on better harnessing this valuable asset.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)