Guideline for people dependent on remittances

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As Sri Lanka celebrated its 74th Independence Day earlier this year, some intriguing news caught the world’s attention. Then-president Gotabaya Rajapaksa called on Sri Lankans abroad to send money home to weather the island’s worsening economic crisis. But the Sri Lankan diaspora rebuffed its call for remittances which quickly fell to its lowest level in decades. The resulting economic fallout was almost certain to swallow his government.

According to the World Bank, remittances have been the largest source of external finance for low- and middle-income countries since 2016. When a country’s share of remittances is high relative to its GDP, that money is of greater importance to his current account balance. . In Pakistan, Lebanon and Nepal, where the exposure to macroeconomic shocks such as natural calamities, political conflicts and vagaries of tourism is very high, the substantial increase in foreign earnings of foreign workers becomes of vital importance. .

money for something

During Zimbabwe’s devastating period of hyperinflation in 2008-09, more than 3 million people migrated overseas. Foreign currency remittances sent by these Zimbabwean migrants kept the country from sinking. Afghans have received similar protection through funds handed over after the Taliban’s lightning-fast takeover of the country in 2021 and during natural disasters. The close ties between the Bangladeshi diaspora and their country of origin represent an innovative model for economies dependent on remittances. The money sent home by these expats is now the second highest foreign exchange earner in the country and the second largest reserve in South Asia.

In addition to direct effects, remittances generated multiplier effects. The demand for goods and services increased, the poverty rate dropped significantly, manufacturing and entrepreneurial activities flourished, and Bangladesh became one of the fastest growing economies in the world. Another example is Ghana, which has transformed into a more resilient, inclusive, digitized and diversified economy. Indeed, remittances allow backward economies to escape the poverty trap and help more globalized economies, such as China and India, to prosper.

Unlike foreign aid which goes to the government, remittances go directly to families in need. Remittances are generally recurring flows and behave counter-cyclically; and both characteristics help recipients survive income shocks. This smooths consumption, stabilizes household finances and creates higher demand for goods and services. The money was also used to invest in real estate, finance investment projects and start new businesses.

Unfortunately, countries are not naturally endowed with remittances. As in Sri Lanka, appeals for remittances may be ignored by expatriate communities. This is particularly worrying after the Covid-19 pandemic and the global recession, as many countries found themselves with declining exports, rising debts and falling foreign exchange reserves.

To avoid the Sri Lankan debacle, countries may want to consider realistic measures. The first step is to help people find jobs in foreign countries. Worker training should be targeted to the needs of high-income countries. Governments should strengthen bilateral diplomacy and provide embassy services to facilitate the employment of their citizens. Strong inter-agency coordination builds trust among migrants. The concerns of migrants from departure to return must be taken into account. No one should ever be treated with prejudice, stereotypical attitudes or discrimination.

Research has shown that the digitalization of financial services has increased the transfer of money, expanded the size of the formal economy, and promoted financial inclusion. This will minimize traditional methods of sending money such as hawala Where Hindi and increase formal remittances. The country’s monetary policy and exchange rate regime play a prominent role in determining the amount of remittances. Misguided policies and overvalued exchange rates dry up remittances and deplete foreign exchange reserves.

Long term strategy

A long-term strategy for persistent remittance flows requires greater efforts. A steady expansion of the pool of highly skilled migrants is needed. The education and health sectors must be given the highest political priority. Technology and communication services must be integrated into the daily schedule of the company. This was a milestone through which the Indian diaspora in the United States made inroads into the global e-services market, making India the largest remittance receiving country in the world for years.

Ultimately, the question is not whether people migrate or resources flow. They always do. The real question is the size and direction of the flow. According to world-renowned economic development expert Paul Collier, most low- and middle-income countries are integrated into the global economy through capital flight rather than capital inflows. These countries are losing capital because of bad governance, bad policies and political instability. The only long-term solution is to fight corruption, carry out institutional reforms and maintain political stability. This requires creating a good investment climate, developing inclusive institutions, and diversifying trade and commerce. Gotabaya Rajapaksa could have explored many avenues for this purpose. But he squandered that opportunity in favor of excessive nepotism and arrogance, driving the Pearl of the Indian Ocean into bankruptcy and dashing the hopes of so many.

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