Remittances: levels and trends

Remittances are transferred through various channels, ranging from official bank transfers to being physically carried by hand to the receiving location. Due to the multitude of transfer channels, they are often difficult to track. The following section relies on data from official sources, which, for the most part, do not cover large portions of remittance flows, namely those that are either unreported or reported under other types of capital flows.

Defying expectations, the impact of the global financial crisis in 2008 on remittance flows to South and South-West Asia was limited. In fact, remittance receipts in United States dollars increased in 2009 to Bangladesh, Maldives, Nepal, Pakistan and Sri Lanka compared to the previous year and continued to increase in 2010. Even the growth in remittances remained high in most countries. Only Bangladesh experienced a drop in remittance growth, which rose 18 per cent in 2009 as compared to a 36 per cent increase in the previous year. India experienced a slight drop of 1 per cent in remittance receipts in United States dollars in 2009, but remittances in Indian rupees increased (India MOIA 2011). In 2010, the country’s remittance receipts picked up again in dollar terms. One explanation for the resilience of remittance flows during this period is that a predominate amount of them came from countries of the Gulf Cooperation Council (GCC).4 With the exception of Dubai, one of the emirates that make up the United Arab Emirates, locations in the GCC countries were only slightly affected by the global financial crisis. Job losses in Dubai were, however, cushioned by increased demand from the United Arab Emirates and Qatar (ESCAP 2009).

India leads the subregion in terms of remittance receipts, recording inflows totaling almost $54 billion in 2010. However, large portions of these remittances did not necessarily originate from migrant workers abroad. Other sources of these remittances may have included the following:

  • Employees’ compensations, which have been increasing in line with the rise in Indian foreign direct investment (FDI) worldwide.
  • Funds from the diaspora populations.
  • Property investments by the Indian diaspora, which are actually more similar to foreign direct investment (FDI) than remittances. Notably, in many
  • cases, there is considerable statistical overlap between FDI and remittances (Kapur 2004).

Trailing far behind India were Bangladesh and Pakistan, ranked second and third in the subregion, respectively, with remittance receipts of $10.8 billion and $9.7 billion (figure 1).

During the 1980s, remittance levels remained relatively stable in the subregion, not exceeding $5 billion in any country. The dynamics, however, shifted significantly in the 1990s. For example, remittances to India increased sharply during that decade and then again after 2002 in line with increased temporary labour migrant outflows. Similarly, remittances to Bangladesh, Pakistan and Sri Lanka have grown at a steady pace since 2002 (figure 2). With regards to Pakistan, in addition to increased labour outflows, the increase in official remittances may be attributed to tighter controls placed on informal money changers. Also, of note, in recent years, many Pakistanis with savings in offshore accounts have repatriated their funds, fearful of being caught in investigations into terrorist financing (Kapur 2004).

Although remittance receipts in Bhutan and Maldives are small in absolute and relative terms, amounting to $4.8 million and $4.0 million, respectively, they have notably been increasing steadily in the past few years.

Turkey was one of the subregion’s largest remittance recipients in the 1980s and 1990s but this inflow plummeted in 2000. The decline was attributed to a number of factors, including among others, increasing unemployment in Germany—the main country of destination for Turkish labour migrants—decreasing links between second generation migrants and their country of origin, and the ageing diaspora populations. At the same time, the financial infrastructure in Turkey improved significantly and specifically designed products that targeted the diaspora population. Research conducted in the 1980s indicated that attempts by the Government of Turkey to attract higher levels of remittances were largely unsuccessful. Instead, the main determinants of remittances to Turkey were employment prospects in Germany as well as the political situation in the country—remittances increased with the perception that the funds would be utilized effectively (Straubhaar 1986). A more recent study confirmed that the level of remittance flows was dependent on the economic situation in the country of destination, Germany, but indicated that the economic situation in Turkey only had limited influence (Akkoyunlu and Kholodilintantin 2006).

Bhutan and Maldives are the only countries in the subregion with larger remittance outflows than inflows. In Bhutan, $82 million of worker’s remittances were sent from the country in 2010 while in Maldives, remittance outflows rose steadily over an extended period of time, peaking at $125 million in 2008 and easing to $110 million in 2010 (World Bank 2011).

Regarding Afghanistan, where reliable data on remittances are not available, the role of remittances can only be roughly estimated. A large number of Afghans live abroad, a majority of whom are refugees in the Islamic Republic of Iran or Pakistan, with limited ability to earn money and thus remit funds.

However, some of them have obtained refugee status in Europe and North America, putting them in a financial position to make remittances. According to household surveys, remittances play a large role in many Afghan households and most likely make a significant contribution to the economy (Jayawardhana and Jayaweera forthcoming). Thus, harnessing diaspora investment for the country’s development could be of increasing importance for the country.

 

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4 The member States of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.