How can remittances be used to boost the economy?

Remittances can boost the economy by increasing household income and consumption. When individuals receive money from family members working abroad, they tend to spend a significant portion of it on goods and services in their home country. This increased spending stimulates local businesses, leading to economic growth. Additionally, remittances can be used for savings and investments, contributing to long-term economic development.

A WB study highlights that there is a consistently positive long-run relationship between remittances and output: on average, a 10% rise in remittances is associated with a 0.66% rise in GDP in the long run. What makes remittances unique as opposed to comparable financial flows like foreign aid is that they avoid the bottlenecks often experienced with official entities. Remittances are a household-to-household transfer. After accounting for transaction costs, it is directly received by households, who are the true beneficiaries. Consequently, at the micro level, remittances have the capacity to help eradicate poverty, improve education & living standards at the micro-level. At the macro level it serves as a driver of growth.

Las remesas pueden impulsar la economía de varias maneras. Primero, aumentan la capacidad de gasto de las familias receptoras, estimulando la demanda interna. Además, pueden financiar inversiones en educación y salud, mejorando la productividad laboral a largo plazo. También pueden servir como fuente de financiamiento para pequeños negocios y emprendimientos, promoviendo el crecimiento económico. Sin embargo, es importante gestionarlas adecuadamente y promover políticas que fomenten la inversión y el ahorro para maximizar su impacto positivo.

Agreed in terms of financial support to the family and money coming in your economy, however the intellectual loss if estimated is much higher for skilled resources.It further deepens in society where literacy rate is low as it leaves behind illiterate masses who are exploited by rich.

There are countries that have invested in good education, esecially in primary and secondary level such that its citizens leave the country at some point. In Economics you might want to look at this as an export by this country and in return of exporting their labor they get remittances. So the benefits of remittances become improved access to foreign currency, helps correct the balance of payment, helps grow the economy, helps sustain those back home etc. Zimbabwe is an example of a country benefiting from this and is now averaging US$50m a day in remittances with the number expected to keep increasing as more people leave the country.

Venezuelan Crisis and Colombian Brain Drain: Challenge: Mass migration of skilled Venezuelans to Colombia seeking economic refuge triggered by Venezuela's inflation and currency collapse. Impacts: Colombia: Skilled labor influx boosted certain sectors but also led to wage pressures and potential displacement of local workers. Venezuela: Brain drain exacerbated skilled worker shortage, hindering economic recovery and perpetuating dependence on remittances. Remittances: Increased flow to Venezuela provided relief but potentially discouraged local initiatives and incentivized further migration. Financial Literacy: Education for remittance recipients can promote productive investments and entrepreneurial ventures, mitigating dependency.

1. Recipient countries may become excessively reliant on remittances, leaving them vulnerable to external shocks and without significant buffers against volatility in remittance receipts. 2. These countries may fail to strike the right balance between challenges of brain drain/human capital losses and attractive growth in remittance receipts. Some developing/underdeveloped recipient countries have been known to fall prey to above factors. They must develop long term policies to address remittance dependence and brain drain.

Other examples of losses to the sender include: non existence of promised business setup, non existence of house construction, non existence of promised land purchases leading to permanent lost trust among family members or friends, and sometimes companies

I think a great example of some of the key points to this section were observed in real time during the COVID-19 lockdowns. In the U.S., remittances were handed out to support citizens that were unable to work due to closures and stay in place safety protocols that prohibited their usual means of earning. Issues that were born of that included labor shortages, the paradigm shift of the traditional work culture requiring in person, nominal wage relationships and how frontline workers were able to step back and reassess what they perceived as unfair labor standards and wages from corporations.

Remittances could also be in the form of SeLFIES retirement bonds or Educa+ education bonds (created by Brazil in 2023) to allow individuals working abroad to save for their own or their parents' Retirement + education of family members.

People should be encouraged to invest back home and not just send money home for consumption alone. Notable real estate firms can partner with banks to collect funds directly from diaspora customers looking to invest in real estate. Customer can be encouraged to fund their accounts with direct bank deposit through IMTO partners and this deposit can then be used to access cash backed facilities.

Top of mind points: 1. Foreign Exchange Reserves: Remittances contribute to a country's foreign exchange reserves, which can be crucial for maintaining currency stability. Eventually, Adequate foreign exchange reserves can boost investor confidence and attract foreign direct investment, further stimulating economic growth. 2. Increased Consumption: Remittances are often used by recipients to meet their daily needs, such as food, education, and healthcare. This increased consumption creates a demand for goods and services, thereby boosting economic activity. 3. Financial Inclusion: By sending money through regulated channels, recipients can access banking services, savings accounts, and credit facilities.

While remittances are in many cases intended for consumption and needed by the recipients to cover consumption costs, channelling remittances into productive assets and/or business ventures by the recipient could be a way for remittances to become more effective in contributing to the recipient's livelihoods and economic development at large. Policymakers, as well as financial service providers should explore how to facilitate such diaspora investment alongside consumption-oriented remittances.

Kenya's M-Pesa and Remittance Revolution: Challenge: High transaction costs and limited access to formal financial services hindered remittance utilization in Kenya. Solution: M-Pesa, a mobile money platform, enabled affordable, secure, and convenient remittance transfers, fostering financial inclusion and economic growth. Impacts: Recipients: Direct access to remittances facilitated spending on essentials, education, healthcare, and small businesses. Senders: Reduced costs and expanded access via mobile phones led to increased remittance frequency and volume. Kenyan Economy: Remittances through M-Pesa contributed to poverty reduction, GDP growth, and financial inclusion.

Save a part of it, not all must go into consumption. Introduce financial advisory that encourages use of insurance, cash backed facilities and other forms of investment

1. Policy makers should enforce policies that will support the development of low cost and reliable transmission mechanisms for remittances. The mechanisms should not only be accessible to centralised commercial areas but also to the more remote areas. 2. The government has to be involved in the process of creating institutions to introduce new savings instruments and opportunities that will enable migrants to channel their remittance funds into the economy. 3. Governments of remittance-receiving countries, donor governments, and international financial agencies should work together in developing technical means to create new channels for productive uses of remittances and migrants’ savings.

Proper policy implementation can divert valuable remittances’ flows to the priority investment areas through formal financial channels to improve the international trade competitiveness of the country.

First we should get rid of dirty politics, elect clean and educated people. Rest everything would be sorted. We have huge resources.

Remittances have a positive effect for the economy and should be promoted but without forgetting the associated challenges. Two recipes: 1) ensure that the financial sector is efficient and effective. Expecting that a recipient of remittances will become an entrepreneur from one day to another is not realistic. But the financial sector can intermediate saved remittances so that they are invested. 2) reduce taxes on labor. If the supply of labor falls and the reservation wage increases you want to encourage an increase in the labor force participation rate. And one way is to make labor more attractive through higher net wages. Governments can compensate the fiscal loss by increasing a bit VAT/sales taxes.

There is the practical problem of international money laundering and illegal financial flows. Therefore, remittances have been increasingly regulated over the past years, known as AML/CFT (anti-money laundering/ combating terrorism finance). If countries do not adhere to these regulations, they may face negative polit-economic effects, such as blacklisting by the US. However, AML/CFT do strongly affect low-income households, because they do not have the identification, or it is very costly to them. Financial Inclusion policy aims to balance AML/CFT with access to remittances for low-income-earners; so that small transactions are largely free of identification burdens.

Blockchain Technology: Exploring blockchain's potential to reduce costs, enhance transparency, and accelerate transfer speeds. Gender-Responsive Initiatives: Designing initiatives that address women migrants' specific needs and leverage their role in remittance management. Climate-Related Remittances: Supporting remittances for climate adaptation and resilience-building in vulnerable communities. South-South Cooperation: Fostering knowledge exchange and partnerships between developing countries to share best practices and promote innovative solutions. Need for Coordination: Enhanced coordination among initiatives is crucial to avoid duplication and ensure synergies.

Remittances, the money sent by migrants to their families, are crucial for global economies, reaching an estimated $692 billion in 2021, surpassing official development assistance (ODA). They play a significant role in economic growth, poverty reduction, and financial inclusion in developing countries. Remittances boost the economy by increasing consumption, supporting savings and microfinance, contributing to education and healthcare, and enabling remittance-based microinsurance. Initiatives such as digital remittance platforms, financial literacy programs, and remittance-linked social protection programs enhance the positive impact of remittances.

Innovative remittance initiatives continue to emerge globally. The Digital Remittance Innovation Challenge encourages tech solutions for efficient cross-border transfers. Local cooperatives, like India's SHG movement, empower women by channeling remittances into community projects. The "Remitancepreneurs" program supports entrepreneurs in developing countries, fostering local businesses. The Blockchain for Remittances project explores decentralized technology for secure and transparent transactions. The "Art for Remittances" initiative promotes cultural exchange, connecting artists and migrant communities through creative expression.

To promote remittances, government of the recipient country can initiate some programs such as allowing a them to have a vehicle with less taxes, subsidized rates on housing loans, pension plans for support the workers after retirement.

É necessário salientar e observar as mudanças que foram instituídas pelo Novo Marco Cambial que entrou em vigor em 31/12/2022, que simplifica as transferências internacionais. A nova lei permite que pessoas singulares e coletivas operem diretamente no mercado de compra e venda de moedas. O novo marco cambial também permite que as instituições de pagamento fechem câmbio diretamente, até um limite de 10 mil dólares por operação. Além disso, a nova lei aumenta o limite de dinheiro em espécie que cada pessoa pode transportar em viagens internacionais, de 10 mil reais para 10 mil dólares, além de permitirem que pessoas singulares negociem moedas internacionais até um limite de 500 dólares por operação.

8 Tips: 1. Promote financial literacy: Educate recipients on managing and investing remittances. 2. Develop remittance-linked financial products: Savings accounts, microloans, insurance. 3. Reduce remittance costs: Foster competition and digital financial inclusion. 4. Invest in social safety nets: Complement remittances with targeted poverty reduction programs. 5. Improve governance and transparency: Combat corruption and ensure funds reach intended recipients. 6. Strengthen financial infrastructure: Build accessible and efficient financial systems. 7. Encourage remittance usage for education, healthcare, and business ventures. 8. Monitor and evaluate impact: Regularly assess the effectiveness of remittance-based initiatives.

Remittances are not a magic wand. I've regularly seen statistics about how ODA pales in comparison to remittances in some countries. That is true. The problem is that a large share of remittances is disaggregated into small amounts and end up in households. That's not bad in itself but things can be better. Remittances can be aggregated in a systematic manner to invest in, for example, infrastructure or development projects at the destination. That way, remittances will add value to the economy in addition to household welfare.

I think one of the biggest blockages for encouraging remittances is the lack of suitable, secure and convenient channels of remittance. Most gateway portals are expensive or have unfavorable exchange rates that can be discouraging. As a result, people look for options in the black market which will adversely affect the cashflow and movement of funds within the economy. Designing the use of cheaper, safer and mutually beneficial online transfer portals can encourage remittances. The financial literacy of the people also needs to be improved. Reduction of taxes on remittances and other incentive schemes can also be carried out by governments to encourage remittances.

Banks to work with diaspora organizations locally to enhance reach to Diasporans across the world and also participate in road shows

Remittances boost economies, particularly in developing nations, by increasing household income, improving living standards, and reducing poverty. This leads to more spending on education and healthcare. They stimulate consumer spending, enhancing demand for local goods and services, and often fund business startups, creating jobs and economic growth. They encourage financial inclusion and provide foreign currency, stabilizing national currencies. Remittances help balance trade deficits, are used for community projects, and act as a financial buffer in downturns. Additionally, they drive human capital development and strengthen international economic ties, contributing to overall growth and stability.