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remittances

Remittances from workers abroad back to Asian countries drops with rise in global unemployment

By Jon Fernquest

remittances

Unemployment rates are climbing in countries throughout the world.

People often migrate from poorer countries to richer countries to find better work and higher pay.

These workers then send money back to their family in the poorer country. This adds to household consumption and boosts GDP.

This money is called "remittances" or "remittances from workers abroad."

With the rise in global unemployment, remittances have been declining.

Remittances sent home to families, however, are more reliable than volatile inflows of investment capital from foreign bank loans and money invested in the stock market, especially in a declining world economy (Read Economist article).

As can be seen in the data below (unlike capital inflows) remittances are still increasing, only at a slower rates:

remittance growth

With an economy in decline there is always the temptation to get rid of foreign workers and give their jobs to locals, but this might not be the right thing to do:

One thing that strikes me, though, is that to the extent migrants are staying on and continuing to send money home, the easiest thing that rich countries could do to aid poorer ones (forget all the talk about increasing aid and setting aside 0.7% of stimulus packages for developing countries) is to simply not crack down on immigration (Source: Economist blog)

Importance of remittances to poorer economies

A large fraction of some countries' GDP comes from remittances: Tajikistan (45%), Moldova (38%), and Honduras (25%) (See comparison on right).

Remittances are a growing and important form of financial aid for many poorer countries (See graph above on right comparing remittances with different forms of investment (private debt, portfolio equity, FDI) and development assistance (foreign aid), Source: World Bank; also see World Bank blog and website).

The top countries for remittances in Asia were:

$27 billion - India
$25.7 billion - China
$17 billion - Philippines

The contribution of Overseas Filipino Workers (OFWs) to the Phillipine economy has been recognised for years (See comparison below right).

remittances in dollars

In fact, in addition to sending money home to support consumption these workers also buy property and start new businesses so a new acronym has been created to describe this wider role: Overseas Filipino Investor (OFI).

Here is a country by country survey of what's been happening to remittances in Asia prepared by Bangkok Post reporter Umesh Pandey (Also read a recent report on remittances to Burma):

Thailand

Thailand's share of the global remittance market has been small but it too has seen a decline.

The latest Bank of Thailand data showed that the number of workers outside the country has dropped by double digits.

The Bank of Thailand said that as of end of January there were 11,186 Thai labourers abroad, a 26.2% decline from the same period last year. Remittances back to the country were down 14.4% from a year ago to 4.64 billion baht, and by 571 million from December 2008.

Thousands of Thais work in the Middle East, where there has been a sharp decline in the number of projects due to the economic crisis and the decline in oil prices.

Companies in labour-intensive industries such as fisheries in Thailand have started to open up their job markets for local Thais to apply while they try to reduce the number of workers from the likes of Burma and Cambodia.

migrate - move from one country to another country or from one region to another (either temporarily or permanently)
remittances - transfers of money by a foreign worker to his home country (See Wikipedia)
household consumption - the amount of money spent on goods and services by all families (households) in an economy
reliable - dependable, can be trusted to work well, that way you want it to work
Overseas Filipino Workers (OFWs) - Phillipino workers working in foreign countries (See Wikipedia)
Overseas Filipino Investor (OFI) - a revised way of describing how overseas Phillipinos contribute to the Phillipine economy (many Phillipinos bcome permanent residents of other countries and will never go back to their original country, but continue to send money and gifts back)
temptation - something that you may like to do, but shouldn't
stimulus packages - government spending programmes or tax cuts to get the economy moving again
crack down on immigration - making immigration more difficult
private debt - foreign bank loans taken by private companies (also bonds sometimes)
portfolio equity - investments in stocks
FDI - foreign direct investment, when foreign companies build factories and start operations in another country (See Wikipedia)
development assistance, foreign aid - money given by foreign governments to help poorer countries grow and develop (See Wikipedia)
GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary)
a survey - a short summary description of all the parts of something, without great depth or details
dropped by double digits - decreased by 10% or more
labour-intensive industries - industries that use more labour and less technology and machines (often "cheap labour" is the most important factor decreasing the cost of these products)

Phillipines

Remittances from Filipinos abroad in January registered the lowest annual growth in five years, only 0.1% year-on-year to $1.266 billion, although the remittances fell from $1.4 billion in December.

Remittances are a pillar of the Philippine economy and are widely watched by the market as many families depend on funds from abroad for their domestic consumption.

The central bank said that a further slowdown in remittance flows in the coming months could erode the country's balance of payments, which stood at $2.204 billion in the first two months of the year, Reuters reported.

The central bank has said remittances will likely stay flat in 2009 at around the 2008 level of $16.4 billion. But a Reuters poll of 10 economists showed a median forecast of a 6% fall in remittances this year.

The biggest source of remittances in January was the United States, with $461.26 million, down 25% from a year ago. The second biggest source was Saudi Arabia with $126 million, up 42%, and third was Canada with $163.31 million, up nearly 80%.

a pillar of the economy - one thing that gives the economy strength
balance of payments - (See Wikipedia)
erode the country's balance of payments -
will likely stay flat - will neither increase or decrease, will stay the same
median - the middle amount (average can be swayed by extreme values)
a median forecast of a 6% fall - the middle country in the list will experience a 6% fall

India

Forty-four percent of total remittances to India were from North America, followed by West Asia and Europe at 24% and 13%, respectively.

According to the latest reports from the Reserve Bank of India, the sharp decline in oil prices has reduced the incomes of workers in the Gulf countries, which would further erode remittances to India, although the impact has not been felt yet.

According to World Bank estimates in November 2008, remittances from the Gulf region could decline by 9% in nominal dollar terms during 2009, compared with a 38% in 2008.

The latest available Reserve Bank data, showed that remittances increased to $43.5 billion in the 2007-08 financial year, from $30.8 billion in 2006-07.

However, the figures are skewed by interest differentials and exchange-rate movements, in addition to being from the period before the world economy began to contract. Interest rates offered to non-resident Indian accounts in Indian banks have risen, which has helped bring deposits into India, thus offsetting the adverse impact from the fall in remittances.

Since September, interest rate ceilings on non-resident Indian deposit schemes (at 100-175 basis points over Libor) have made it more attractive to park funds in India.

Between April 2008 and January 2009, total inflows through non-resident Indian deposit schemes were estimated at $2.15 billion, as against an outflow of $406 million.

"India has seen more migration of workers to the rest of the world. It has a larger number of expatriates and high level of remittances. So, remittances will be affected to a greater degree," Business Standard quoted World Bank chief economist Justin Yifu Lin as saying.

erode remittances - reduce the amount of remittances
the figures are skewed -
the figures are skewed by interest differentials and exchange-rate movements
non-resident Indian deposit schemes - special arrangements for Indians who do not live in Indian to deposit money in Indian banks
park funds - keep their money in the country
expatriates - foreigners living a long time in a country away from their own country

Indonesia

Indonesia expects remittances from its overseas workers to drop by up to 10% in 2009. The head of a state agency in charge of migrant workers said that Indonesians working abroad sent home about $8.2 billion last year, an estimate based on an assumption that 70% of the income received by registered workers was sent back. The figure could reach $10-11 billion if it included remittances from unregistered workers.

Jumhur Hidayat, the head of the agency, said that the impact on the manufacturing and construction sector could curb remittances by 5-10%.

The agency said there were 4.3 million Indonesian overseas workers registered last year, with 65% working as domestic help. The number of unregistered workers may exceed 1.5 million.

curb remittances - reduce remittances

Cambodia

Migrant-worker job markets such as Malaysia and South Korea - both popular with Cambodians seeking work overseas - have been particularly badly affected as some sources say that demand for factory workers in these countries may have fallen by as much as 70%.

The announcement by various governments (similar to those of some Thai companies) of a halt in migrant workers has affected Cambodian labour exports.

Malaysia has curbed the influx of migrant workers due to rising local unemployment levels.

It is estimated that in 2008, Cambodia sent 2,531 workers to South Korea, but Heng Sour said that this number would be expected to drop to 2,000 in 2009.

(Source: Bangkok Post, business, 21/03/2009, LESS MONEY COMING HOME, Umesh Pandey, link)

Posted by Jon Fernquest at 01:21 PM | Permalink | Comments (0)

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People often migrate from poorer countries to richer countries to find better work and higher pay. These workers then send money back to their family in the poorer country. This adds to household consumption and boosts GDP. This money is called "remittances" or "remittances from workers abroad." With the rise in global unemployment, remittances have been declining. Remittances sent home to families, however, are more reliable than volatile inflows of investment capital from foreign bank loans and money invested in the stock market, especially in a declining world economy (Read Economist article). As can be seen in the data below (unlike capital inflows) remittances are still increasing, only at a slower rates: With an economy in decline there is always the temptation to get rid of foreign workers and give their jobs to locals, but this might not be the right thing to do: One thing that strikes me, though, is that to the extent migrants are staying on and continuing to send money home, the easiest thing that rich countries could do to aid poorer ones (forget all the talk about increasing aid and setting aside 0.7% of stimulus packages for developing countries) is to simply not crack down on immigration (Source: Economist blog) Importance of remittances to poorer economies A large fraction of some countries' GDP comes from remittances: Tajikistan (45%), Moldova (38%), and Honduras (25%) (See comparison on right). Remittances are a growing and important form of financial aid for many poorer countries (See graph above on right comparing remittances with different forms of investment (private debt, portfolio equity, FDI) and development assistance (foreign aid), Source: World Bank; also see World Bank blog and website). The top countries for remittances in Asia were: $27 billion - India $25.7 billion - China $17 billion - Philippines The contribution of Overseas Filipino Workers (OFWs) to the Phillipine economy has been recognised for years (See comparison below right). In fact, in addition to sending money home to support consumption these workers also buy property and start new businesses so a new acronym has been created to describe this wider role: Overseas Filipino Investor (OFI). Here is a country by country survey of what's been happening to remittances in Asia prepared by Bangkok Post reporter Umesh Pandey (Also read a recent report on remittances to Burma): Thailand Thailand's share of the global remittance market has been small but it too has seen a decline. The latest Bank of Thailand data showed that the number of workers outside the country has dropped by double digits. The Bank of Thailand said that as of end of January there were 11,186 Thai labourers abroad, a 26.2% decline from the same period last year. Remittances back to the country were down 14.4% from a year ago to 4.64 billion baht, and by 571 million from December 2008. Thousands of Thais work in the Middle East, where there has been a sharp decline in the number of projects due to the economic crisis and the decline in oil prices. Companies in labour-intensive industries such as fisheries in Thailand have started to open up their job markets for local Thais to apply while they try to reduce the number of workers from the likes of Burma and Cambodia. migrate - move from one country to another country or from one region to another (either temporarily or permanently) remittances - transfers of money by a foreign worker to his home country (See Wikipedia) household consumption - the amount of money spent on goods and services by all families (households) in an economy reliable - dependable, can be trusted to work well, that way you want it to work Overseas Filipino Workers (OFWs) - Phillipino workers working in foreign countries (See Wikipedia) Overseas Filipino Investor (OFI) - a revised way of describing how overseas Phillipinos contribute to the Phillipine economy (many Phillipinos bcome permanent residents of other countries and will never go back to their original country, but continue to send money and gifts back) temptation - something that you may like to do, but shouldn't stimulus packages - government spending programmes or tax cuts to get the economy moving again crack down on immigration - making immigration more difficult private debt - foreign bank loans taken by private companies (also bonds sometimes) portfolio equity - investments in stocks FDI - foreign direct investment, when foreign companies build factories and start operations in another country (See Wikipedia) development assistance, foreign aid - money given by foreign governments to help poorer countries grow and develop (See Wikipedia) GDP, Gross Domestic product - a measure of economic activity in a country, the value of the country's output of goods and services. GDP is defined roughly as: GDP = Household Consumption + Business Investment + Change in Inventories + (Government Spending - Taxes) + (Exports - Imports) (See Economist Glossary) a survey - a short summary description of all the parts of something, without great depth or details dropped by double digits - decreased by 10% or more labour-intensive industries - industries that use more labour and less technology and machines (often "cheap labour" is the most important factor decreasing the cost of these products) Phillipines Remittances from Filipinos abroad in January registered the lowest annual growth in five years, only 0.1% year-on-year to $1.266 billion, although the remittances fell from $1.4 billion in December. Remittances are a pillar of the Philippine economy and are widely watched by the market as many families depend on funds from abroad for their domestic consumption. The central bank said that a further slowdown in remittance flows in the coming months could erode the country's balance of payments, which stood at $2.204 billion in the first two months of the year, Reuters reported. The central bank has said remittances will likely stay flat in 2009 at around the 2008 level of $16.4 billion. But a Reuters poll of 10 economists showed a median forecast of a 6% fall in remittances this year. The biggest source of remittances in January was the United States, with $461.26 million, down 25% from a year ago. The second biggest source was Saudi Arabia with $126 million, up 42%, and third was Canada with $163.31 million, up nearly 80%. a pillar of the economy - one thing that gives the economy strength balance of payments - (See Wikipedia) erode the country's balance of payments - will likely stay flat - will neither increase or decrease, will stay the same median - the middle amount (average can be swayed by extreme values) a median forecast of a 6% fall - the middle country in the list will experience a 6% fall India Forty-four percent of total remittances to India were from North America, followed by West Asia and Europe at 24% and 13%, respectively. According to the latest reports from the Reserve Bank of India, the sharp decline in oil prices has reduced the incomes of workers in the Gulf countries, which would further erode remittances to India, although the impact has not been felt yet. According to World Bank estimates in November 2008, remittances from the Gulf region could decline by 9% in nominal dollar terms during 2009, compared with a 38% in 2008. The latest available Reserve Bank data, showed that remittances increased to $43.5 billion in the 2007-08 financial year, from $30.8 billion in 2006-07. However, the figures are skewed by interest differentials and exchange-rate movements, in addition to being from the period before the world economy began to contract. Interest rates offered to non-resident Indian accounts in Indian banks have risen, which has helped bring deposits into India, thus offsetting the adverse impact from the fall in remittances. Since September, interest rate ceilings on non-resident Indian deposit schemes (at 100-175 basis points over Libor) have made it more attractive to park funds in India. Between April 2008 and January 2009, total inflows through non-resident Indian deposit schemes were estimated at $2.15 billion, as against an outflow of $406 million. "India has seen more migration of workers to the rest of the world. It has a larger number of expatriates and high level of remittances. So, remittances will be affected to a greater degree," Business Standard quoted World Bank chief economist Justin Yifu Lin as saying. erode remittances - reduce the amount of remittances the figures are skewed - the figures are skewed by interest differentials and exchange-rate movements non-resident Indian deposit schemes - special arrangements for Indians who do not live in Indian to deposit money in Indian banks park funds - keep their money in the country expatriates - foreigners living a long time in a country away from their own country Indonesia Indonesia expects remittances from its overseas workers to drop by up to 10% in 2009. The head of a state agency in charge of migrant workers said that Indonesians working abroad sent home about $8.2 billion last year, an estimate based on an assumption that 70% of the income received by registered workers was sent back. The figure could reach $10-11 billion if it included remittances from unregistered workers. Jumhur Hidayat, the head of the agency, said that the impact on the manufacturing and construction sector could curb remittances by 5-10%. The agency said there were 4.3 million Indonesian overseas workers registered last year, with 65% working as domestic help. The number of unregistered workers may exceed 1.5 million. curb remittances - reduce remittances Cambodia Migrant-worker job markets such as Malaysia and South Korea - both popular with Cambodians seeking work overseas - have been particularly badly affected as some sources say that demand for factory workers in these countries may have fallen by as much as 70%. The announcement by various governments (similar to those of some Thai companies) of a halt in migrant workers has affected Cambodian labour exports. Malaysia has curbed the influx of migrant workers due to rising local unemployment levels. It is estimated that in 2008, Cambodia sent 2,531 workers to South Korea, but Heng Sour said that this number would be expected to drop to 2,000 in 2009. (Source: Bangkok Post, business, 21/03/2009, LESS MONEY COMING HOME, Umesh Pandey, link) Posted by Jon Fernquest at 01:21 PM \| Permalink \| Comments (0)
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