A new report jointly sponsored by IOM and
The Hague Process on Refugees and Migration (THP) sheds fresh light
on the role of migrants’ remittances in development.

The report, which is released today,
emphasizes that unless remittance-receiving and sending countries
work together within a coherent policy framework, efforts to
increase the official flows of remittances and harness their full
development potential will fail to make much headway. 

According to the report, if remittances are to
be effectively channelled for development purposes,
remittance-receiving countries need to provide a friendly economic
environment through sound macro-economic policies, including stable
exchange rates, basic physical infrastructure, improved market
integration, reliable financial and other institutions, transparent
legal system and good governance.

As for affluent host countries, they can
actively help the remittance-receiving developing countries in
achieving these reforms.  Consistent with their labor market
and demographic needs, rich countries can also create more
opportunities for migrants from developing countries to come and
work legally in their territories.  Further, they can
facilitate developing countries’ closer integration with the
global economy including through improved access to world capital
markets.

Without prejudice to their legitimate security
concerns, both groups of countries should work together to
facilitate migrants’ periodic visits and other means of
regular contacts with their home countries. The report points out
that this makes it easy for the diaspora members to contribute to
the development of their countries and communities of origin and
helps sustainable and orderly return
migration.     

The report includes an incisive note of
caution against exaggerating the impact of remittances on
investment and growth.  "There is a real danger in overrating
the importance of remittances or portraying their development
potential in an unqualified manner," says Professor Bimal Ghosh,
author of the report. "By giving wrong guidance or lopsided
signals, this could lead to faulty policy formulation and make the
tasks of promoting sustainable development and fighting poverty
more difficult. Remittances are a help but not a panacea for poor
countries”.  

Remittances are a relatively stable source of
external resources for developing countries. But excessive reliance
on them for purposes of growth and development are not without
perils. History shows that both external shocks and internal
economic mismanagement and political instability can cause high
volatility in remittances especially when they are investment-
oriented.  This can throw poor countries development plans and
projects into serious disarray.   

The author also warns against the common
mistake of ignoring the difference between gross and net inflows of
remittances to developing countries. For example, in 2004 total
remittances to developing countries amounted to $160 billion.
However, some of these transfers took place between developing
countries themselves, including the Gulf Cooperation countries;
there were also reverse remittance flows from developing to
developed countries. If these two flows are deducted, developing
countries’ net remittance receipts for 2004 amount to just a
little over $ 100 billion, (compared to the gross receipts of $160
billion).     

The report recognizes that remittances
undoubtedly have a positive impact at a household level because
they help improve children's education and reduce child labour,
contribute to better health, housing and family welfare, and
directly promote future human capital development. In many
instances, they help in the development of small and micro
enterprises by providing credit and contribute to building social
assets and facilities such as schools, hospitals, community
centres, feeder roads and various small infrastructure
projects.

But often these activities remain confined to
local communities and towns, without spurring growth and
development at the macro-level. A major challenge for developing
countries is to extend these localized development impulses to
other parts of the national economy.   

A note of caution is also sounded in the
report against perceiving or projecting remittances as a substitute
for development aid. It warns that this could serve as a
distraction from the commitments made in Monterrey (Mexico)
regarding levels of Overseas Development Assistance. Should this
happen, the Least Developed Countries (LDCs) which have a small,
and indeed declining, share of developing countries’
remittance receipts, will be the worst sufferers, and the reduction
of their poverty be made more difficult. 

A significant proportion of remittances
continue to be sent through informal channels, probably amounting
to 50 per cent or more of recorded remittances. To increase the
volume and value of official flows, the report calls upon the
corporate sector, especially banks and other financial
institutions, to further reduce transaction costs and simplify
transfer procedures. These costs especially for small transfers in
some corridors could still be as high as 20 per cent. The
report  cites a recent estimate showing that if these costs
were reduced to 2-5 per cent and dual exchange rate eliminated,
remittances through formal channels could go up by 50 per cent or
even more.

Another important point made in the report
concerns the significant role that micro-finance institutions can
potentially play in spreading the development impact of remittances
to remote areas where formal banking services are not
available.   

Regarding recent initiatives by migrants'
associations and transnational diasporas, the report notes that
these increasingly contribute to establishing dynamic business,
economic and social links in the country of origin. These can also
be an effective way to encourage the transfer of skills and
knowledge between expatriate communities and their home
country.

The report, entitled “Migrants’
Remittances and Development: Myths, Rhetoric and Realities”
is available online at "http://www.iom.int" target="_blank" title=
"">www.iom.int 

For further information, please contact:



Professor Bimal Ghosh

Tel: + 41 22 755 63 91

Email: "mailto:ghosh@bluewin.ch" target="_blank" title=
"">ghosh@bluewin.ch