Global Economic Prospects 2006 Economic Implications of Remittances and Migration

November 28, 2005

Outlook for the global economy

Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Outlook for the global economy

Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

Outlook for the global economy

Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

The possibility of a large and disruptive rise in interest rates also poses a serious risk.

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000 2005

Growth in developing countries is still strongReal GDP annual change %

Developing

High-income

Forecast

2007

Poverty forecastPoverty forecast Share of population living on $1/day, millions

0

5

10

15

20

25

30

35

40

45

50

East and South Asia Other Sub-Saharan Africa

19902002

2015

Outlook for the global economy

Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

Poor oil-importing countries now more vulnerable

-3

-2

-1

0

1

2

2000-03 2004-05m7

Sub-Saharan

Terms-of-trade impact (% of GDP)

Low-income

Outlook for the global economy

Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

The possibility of a large and disruptive rise in interest rates also poses a serious risk.

0

400

800

1200

1600

1991 1993 1995 1997 1999 2001 2003 2005

Basis points

Low spreads have supported growth, but…

0

400

800

1200

1600

1991 1993 1995 1997 1999 2001 2003 2005

Basis points

Low spreads have supported growth, but…

Policy priorities

Long-term prospects of developing economies will depend importantly on further reforms, including a successful Doha round.

Policy must promote not impede oil-sector adjustment mechanisms.

Increased public and private savings in the U.S., supportive policy in Europe and continued balance sheet vigilance by emerging markets will reduce global interest rate risks.

Development implications of migration and remittances

Migration and remittances continue to increase

Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances

There is considerable scope for reducing remittance costs faced by poor migrants

Development implications of migration and remittances

Migration and remittances continue to increase

Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances

There is considerable scope for reducing remittance costs faced by poor migrants

0

25

50

75

100

125

150

175$ billion

Private debt and portfolio equity

FDI

ODA

Recordedremittances

Remittances have continued to increase

22 21

18

1312

India China Mexico France Phili-ppines

Top recipients of remittances, 2004

31

27 26 2523

Tonga Moldova Lesotho Haiti Bosnia-Herz.

$ billion % of GDP

Development implications of migration and remittances

Migration and remittances continue to increase

Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances

There is considerable scope for reducing remittance costs faced by poor migrants

Migration boosts welfare for most householdsChange in real income in 2025$ billion

0

20

40

60

80

100

120

140

160

180

High income countries Developing countries New migrants.

Global gains of $356 billion

Remittances reduce poverty

Evidence from a few household surveys shows that remittances reduce poverty

Cross-country evidence shows that a 10% increase in per capita remittances leads to a 3.5% decline in the share of poor people

Remittances also finance education and health expenditures, and ease credit constraints on small businesses

Remittances tend to rise following crisis, natural disaster, or conflict

Remittances as % of private consumption

0.5

1.2

1.7

1.4

2.0 2.0

1.0

2.0

1.8

Indonesia Mexico Thailand

year before

year of crisis

year after

Remittances improve countries’ access to capital

0

100

200

300

400

500

600

700

800

Excluding remittances

Including remittances

Present value of external debt as % of exports of goods, services, and remittances

Large remittance flows may lead to currency appreciation and adverse effects on exports

Remittances may create dependency

Remittance channels may be misused for money laundering and financing of terror

Downside

Development implications of migration and remittances

Migration and remittances continue to increase

Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances

There is considerable scope for reducing remittance costs faced by poor migrants

Remittance fees are high, and regressive

16

9

76

5 5

$100 $200 $300 $400 $500 $600

Fee and foreign exchange commission as % of principal

Weighted average of fees of four largest money transfer operators in the U.S.-Mexico corridor

Policy priorities Governments can provide information and regulate

intermediaries to reduce risks, costs of migration

High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry

Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate

intermediaries to reduce risks, costs of migration

High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry

Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate

intermediaries to reduce risks, costs of migration

High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry

Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Thank you!