Countries and Migrant Workers Pay High Price for the Benefits of Remittances

South Asian migrant laborers working on a construction project in Singapore.
South Asian migrant laborers working on a construction project in Singapore.

By Mayumi Ozaki

Every year, millions of people cross borders to work abroad. People migrate for various reasons, but for the majority of migrant workers, they are compelled by poverty and lack of job opportunities in their home countries.

Every year, millions of people cross borders to work abroad. People migrate for various reasons, but for the majority of migrant workers, they are compelled by poverty and lack of job opportunities in their home countries. Throughout the world, there are an estimated 96 million migrant workers, of which 28 million are from the Asia and Pacific region.

Corresponding to the growth of the number of migrant workers, remittance inflows to developing countries has grown dramatically—estimated at $435 billion in 2014. In 2013, remittances were more than three times larger than official development assistance, and in many countries, significantly exceeded foreign direct investments.

Remittances are particularly important for developing countries in the Asia and Pacific region. In terms of the remittance volume that the countries received, India, the People’s Republic of China (PRC), and the Philippines rank first ($71 billion), second ($64 billion), and third ($28 billion) in the world, respectively. In terms of remittances as a share of gross domestic product (GDP), Tajikistan, the Kyrgyz Republic, and Nepal rank first (42%), third (32%) and sixth (29%) in 2013.

For many ADB developing member countries, remittances are the most important foreign exchange source and lifeline of the economy.

Given their size and importance, it is no surprise that global policy leaders are paying attention to remittances. At the G-20 Leaders’ Summit held 15–16 November 2014 in Brisbane, Australia, G-20 leaders committed to reducing the global average cost of transferring remittances to 5%.

Generally, remittances can have positive impacts on the receiving countries. They can reduce poverty levels and result in higher education and health expenditures at household level. They can also promote better access to information and communication technologies. At the same time, they help improve access to formal financial services, enhance small business investments, and reduced risks of natural disasters and emergencies.

But those benefits come at a high cost. Migrant workers often endure long working hours, harsh environments, fear of harassment, and other malicious work conditions. The workers are often burdened with loans. The workers also shoulder high pressure from their family members to earn more money. They often have to face broken family ties, deaths of their parents and other emotional stresses while abroad.

So remittances are hard earned money by the migrant workers. But, are they used well? What do families do with remittances that they receive? Can families make lasting improvements to their lives with remittances? What about the migrant workers? When they return, can they have a secure and comfortable life back home?

Most of the migrant workers’ households tend to spend remittances on material items such as household appliances, food, and clothes, but have few financial assets such as savings and investments. This is largely because many remittance receiving households do not have access to banks and are outside of the formal financial system. Because of this, households do not have the means to save or invest. Households also lack financial knowledge to productively use remittances.

Remittances channeled outside of the formal banking system constitute a significant wastage for the countries as well. Remittances, if channeled through the formal financial system, can be intermediated for various public investments such as infrastructure, health, and education. Diaspora bonds and securitization of remittances has become increasingly popular as a means to leverage resources for public investments. But, in many countries, the legal, regulatory, and institutional systems necessary to channel remittances for investments have not kept pace with remittance growth.

ADB will organize an international workshop on Promoting Remittances for Development Finance for 18–19 March 2015. The workshop will explore ways to maximize the benefits of remittances for countries and households. It will discuss ways to enhance access to formal remittance services and bring informal remittance flows into the formal financial system; innovative finance to enhance public and private investments by leveraging remittances; and innovative and feasible projects that could enhance the impact of remittances on welfare of individuals and economies. Stay tuned for more details on www.adb.org