Outlook for Remittances 2009-11: Resilience in the face of crisis

Dilip Ratha(with Sanket Mohapatra)World Bank

BSP International Research Conference on Remittances Manila, PhilippinesMarch 30, 2009

Outline

Recent trends

Outlook for 2009-11

Policy options

-25

25

75

125

175

225

275

325

375

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

e

$ billion Private debt and portfolio equity

FDI

ODA

RecordedRemittances

Remittances exceeded $300 billion in 2008

Remittance flows to developing countries

6%44%*37%Sub-Saharan Africa 27%31%20%South Asia8%22%6%Middle-East and North Africa0%7%18%Latin America and Caribbean5%31%23%Europe and Central Asia7%23%13%East Asia and Pacific9%23%*17%Developing countries

Growth rate (%)201913Sub-Saharan Africa 665240South Asia343126Middle-East and North Africa636359Latin America and Caribbean535038Europe and Central Asia706553East Asia and Pacific305281229Developing countries

2008e20072006US$ billion

Remittance flows to developing countries

Share of GDP (%)*

5.2%5.5%4.9%Low-income countries1.9%2.1%2.0%Developing countries

2.7%2.8%2.6%Middle-income countries

8%22%16%Middle-income countries13%29%29%Low-income countries

9%23%17%Developing countries

Growth rate (%)

260241198Middle-income454031Low-income countries

305281229Developing countries

2008e20072006US$ billion

*Only countries with estimates and forecasts of remittances and nominal GDP for 2008-11

45

34

26

18

11 10 9 9 9 7

0

10

20

30

40

50

India

China

Mexico

Philippin

es

Poland

Niger

ia

Egypt

Romania

Banglad

esh

Pakista

n

Top recipients of remittances

46

3835

2924 24 24 23

20 19

0

10

20

30

40

50

Tajiki

stan

Mold

ova

Tonga

Lesoth

o

Honduras

Leban

on

Guyana

Jordan

Haiti

Jamaica

$ billion, 2008e % of GDP, 2007

Near-term outlook

The current crisis is unique, the environment extremely uncertain

Slowdown in remittance flows in 2008 -- expected to deepen further in 2009

Flow – not the stock – of migration to decrease

Remittance flows to Mexico have slowed

-20

-10

0

10

20

30

Fe

b-0

5A

pr-

05

Ju

n-0

5A

ug

-05

Oc

t-0

5D

ec

-05

Fe

b-0

6A

pr-

06

Ju

n-0

6A

ug

-06

Oc

t-0

6D

ec

-06

Fe

b-0

7A

pr-

07

Ju

n-0

7A

ug

-07

Oc

t-0

7D

ec

-07

Fe

b-0

8A

pr-

08

Ju

n-0

8A

ug

-08

Oc

t-0

8D

ec

-08y-o-y growth rate of 3-month m.a. %

Mexican peso/US $ exchange rate

9

10

11

12

13

14

Jan-0

6

Mar

-06

May

-06

Jul-06

Sep-06

Nov-06

Jan-0

7

Mar

-07

May

-07

Jul-07

Sep-07

Nov-07

Jan-0

8

Mar

-08

May

-08

Jul-08

Sep-08

Nov-08

US employment: job losses are not different between natives and migrants

120

121

122

123

124

125

Dec-07

Feb-0

8

Apr-08

Jun-08

Aug-08

Oct-0

8

Dec-08

22

23

24

25

26 (millions)

migrants (right scale)

natives (left scale)

3-month moving averageSource: Current population survey.

Sharp decline US migrant employment in construction and manufacturing; switch to wholesale and retailand restaurants

2.1

2.3

2.5

2.7

2.9

3.1

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

(millions)Manufacturing

Wholesale & retail trade

Construction

Restaurants & hotels

3-month moving averageSource: Current population survey.

Remittance flows to the Philippines have surged in recent years to about $18 billion in in 2008

0

10

20

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

e

$ billion

Remittance flows to the Philippines have also slowed, but much less so than Mexico

0

5

10

15

20

25

30

35

Mar

-05

May

-05

Jul-0

5

Sep-0

5

Nov-0

5

Jan-0

6

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov-0

6

Jan-0

7

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-0

7

Jan-0

8

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-0

9

y-o-y growth rate of 3-month m.a. %

Remittances have grown outside Latin America, but are expected to slow

-3.6

2.54.7 4.5

6.67.6

13.7

17.2

36.9

-10

0

10

20

30

40

Mexi

co

El Sal

vador

Domin

ican

Rep

Guatem

ala

Hondura

s

Kenya

Philippin

es

Pakist

an

Bangla

desh

Estimates for2008

Year-on-year growth rate (%)

Growth relative to same period last year. Jan-Dec for all countries, except Dominican Republic (Jan-Sep actual data and estimates for remaining months)

Outlook for 2009-2010

Medium-term outlook for remittance flows to developing countries

Magnitude of the growth moderation or decline difficult to predict

Remittances as a share of GDP are expected to fall, although not to the same extent as private flows or official aid.

Migration flows from developing countries may slow as a result of the global growth slowdown, but the stock of international migrants is unlikely to decrease.

Remittances will be resilient w r to downturns in host countries

Remittances are sent by the stock (cumulated flows) of migrants

Remittances are a small part of migrants’ incomes that can be cushioned against income shocks by migrants

Duration of migration may increase in response to tighter bordercontrols

“Safe haven” factor or “home-bias” -- returnees will take back accumulated savings

Sectoral shifts – and fiscal stimulus packages – may help some migrants

Documented migrants are likely to try to make up for a fall in remittances by undocumented migrants

Growth of remittance flows to developing countries will moderate significantly in 2009

-10%

0%

10%

20%

30%

2005 2006 2007 2008 2009 2010 2011

Percent

Base case-5%

Growth of remittance flows to regions

-12%

8%

28%

48%

2006 2007 2008 2009 2010 2011

East Asia andPacific

Europe and CentralAsia

Latin America andCaribbean

Middle-East andNorth Africa

South Asia

Sub-Saharan Africa

Percent

Remittance flows to developing countries

-7.9%-7.3%-5.2%-7.7%-12.7%-7.5%-8.2%

186132584664280

Low case 2009

forecast

-4.4%6.3%Sub-Saharan Africa

-4.2%26.7%South Asia

-1.4%7.6%Middle-East and North Africa-4.4%0.2%Latin America and Caribbean

-10.1%5.4%Europe and Central Asia-4.2%6.6%East Asia and Pacific-5.0%8.8%Developing countries

Growth rate (%)

1920Sub-Saharan Africa 6366South Asia

3334Middle-East and North Africa

6063Latin America and Caribbean

4853Europe and Central Asia

6770East Asia and Pacific290305Developing countries

$ billion

Base case 2009

forecast

2008e

Growth of remittance flows to developing countries will moderate significantly in 2009

-10%

0%

10%

20%

30%

2005 2006 2007 2008 2009 2010 2011

Percent

Base case-5%

Low case-8%

Slowdown sharper in low-income countries

-10%

0%

10%

20%

30%

2005 2006 2007 2008 2009 2010 2011

Percent

LICs -5.4%MICs -4.9%

Remittance outflows from Saudi Arabia appear to

be uncorrelated with oil price since early 1990s

0

5

10

15

2019

70

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

0

20

40

60

80US$ billion

Remittance outflows from Saudi Arabia

Crude oil price (right

US$/barrel

Policy options

Facilitate remittance flows

Avoid protectionism in the labor market

Migration depends on two factors:

Willingness to migrate (income difference)

Ability to migrate (border control)

Border controls increase the segmentation of labor markets and increase wage gaps…

…leading to even greater pressures for migration

Some thoughts on border controls and migration

Income differences are zero when border controls are absent, and maximum when border controls are fully effective

Income differences

Maximum0Border controls

The migration curve

Migration

Maximum0Border controls

A B

No incentive to migrate No ability to migrate

Migration peaks long before income differences become zero

Migration

Maximum0Income difference

between sending and receiving

A B

International Remittances

Agenda

1. Monitoring, analysis, projection

2. Retail payment systems

3. Financial access for households

4. Capital market access for institutions

International Remittances

Agenda

1. Monitoring, analysis, projection- Size, corridors, channels- Counter-cyclicality - Effects on poverty, education, health,

investmen- Policy (costs, competition, exchange

controls)

2. Retail payment systems- Payment platforms/instruments- Regulation (clearing and settlement, capital

adequacy, exchange controls, disclosure, cross-border arbitration)

- Anti-money laundering/Countering financing of terrorism (AML/CFT)

3. Financial access- Deposit and saving products- Loan products (mortgages,

consumer loans, microfinance)

- Credit history for MFI clients- Insurance products

4. Capital market access- Private banks and

corporations (securitization)

- Governments (diaspora bonds)

- Sovereign credit rating

Remittances will moderate significantly, causing hardships to the poor and macroeconomic challenges to governments

Slowdown in migration flows will exacerbate the need for more jobs at home

This is a wrong time for tightening immigration

For more, please visit

http://www.worldbank.org/prospects/migrationandremittances

http://peoplemove.worldbank.org (blog)

Summary