FRIDAY, APRIL 08, 2005
Remittances to developing nations to jump
AGENCIES
WASHINGTON: Workers' remittances are a key source of foreign exchange for developing countries, including India, at more than $100 billion a year and expected to rise, but transaction costs remain high, experts and officials say.
Remittance inflows for 90 developing countries amounted to about $100 billion in 2003, according to the International Monetary Fund (IMF). The World Bank says the figure could have risen to $126 billion in 2004.
"This rising trend is likely to persist as population aging continues and pressures for migration from developing to advanced economies increase," the IMF said in a report yesterday.
The five single largest recipients of remittances are India, Mexico, the Philippines, Egypt and Turkey, while their main sources are the United States, Saudi Arabia, Switzerland, Germany and France, the IMF said.
For many countries, remittances constitute the single-largest source of foreign exchange, exceeding export revenues, official aid, foreign direct investment, and other private capital inflows.
They play a key role in boosting economic growth, maintaining macroeconomic stability and reducing poverty as well as allowing households to step up expenditure on basic consumption, housing and education. Given these benefits, said IMF Research Director Raghuram Rajan, there was a "need to encourage additional remittances, for example, by reducing the cost of sending remittances as well as impediments to their flow."
Remittance costs range from $15 to $26 for a typical $200 remittance, Arthur Dewey, a senior US State Department official, told a recent conference.
"The rate can often exceed 20 per cent when transmission fees and exchange rates cost are both factored in," said Dewey, the assistant secretary of state for the bureau of population, refugees and migration.
He said the United States was spearheading an effort to lower the costs of sending remittances and providing opportunities for sending and investing remittances in the financial sector.
"Key steps include expanding competition among remittance providers, eliminating regulatory obstacles to sending remittances, promoting effective financial oversight and increasing financial literacy," he said.
The United States and other migrant-worker host nations worry that a portion of remittances may flow through informal systems, posing a risk of misuse for financing of terrorism.
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