Foreign Remittance and Economic Development
Presented by Hemesiri Kotagama
Mobilizing the Diaspora for National Development
Hemesiri Kotagama
Meaning of Development
Maximize social welfare/ satisfaction 1950: Material development 1960: Equitable development 1970: Qualitative development 1980: Righteous development 1990: Sustainable development 2000: Participatory development
Hemesiri Kotagama
Hemesiri Kotagama
Strategies of Development
Colonialism Nationalistic self reliance International dependence (Neo-Colonialism)
– Loans (WB, IMF, ADB … )– Grants/aid– Foreign private investments (FDI)– Foreign remittance (Diaspora based Development:DBD)
3% of the world population live outside of motherland. Sri Lankans in middle east and Malaysia (2000) was 1.5
Million to 0.8 Million – i.e. 5% to 8% of the population.
Hemesiri Kotagama
Sri Lankans in Oman
Hemesiri Kotagama
Magnitude of remittances: 1
Hemesiri Kotagama
Magnitude of remittances: 2
Hemesiri Kotagama
Remittance vs. FDI: Self Reliant Development: 1
Hemesiri Kotagama
Remittance vs. FDI: Self Reliant Development: Facts
Remittance in Sri Lanka– exceeds FDIs by 2-3 times. It is stable and earnt by us.– 2 to 3 times of net foreign assistance.– 25% of export earnings. Second largest next to garments, ahead
of tourism, tea.– 2 times the earnings of tourism– 3 times the investment made through BOI– Same as the proceeds of privatization income 1989 to 1999)– 7% of GDP.– 10% of households receive and dependant.– 21% of household income of recipients.– 45% of the recipients are from the poorest 40% of people. – approximately Rs. 600 per month per capita.
Hemesiri Kotagama
Who Remits: Rich or the Poor?
Hemesiri Kotagama
Backbone of Sri Lanka’s Economy: Shame to Fame
The government of Sri Lanka has stated:
“Overseas remittance have now become the backbone of the country’s economy.“
Asian Migration News, 31 August 2001
Hemesiri Kotagama
Development Impact of Remittance: Still Ambiguous
Development impacts depends on:– What proportion of remittance is spent on consumption
vs. investments.– What kinds of investments are made.
Empirical Study (World Bank, 2005)– World over remittances (official) reduce poverty– However in South Asia remittance (official) have NOT
had an impact on poverty reduction.– In south Asia (official + unofficial) remittance has an
impact on poverty reduction.– A 10% increase in remittance will reduce the poverty level
by 0.9%.
Hemesiri Kotagama
Development Impact of Remittance: Still Ambiguous
Hemesiri Kotagama
Policy Determinants of Effectiveness of DBD
Encouraging productive migration (unskilled to skilled, loans, insurance … )
Enhancing effectiveness of remittance channeling (financial institutions; informal (50%) to formal sources)
Mobilizing for Productive investments (consumption to investments … small enterprises, education, large infrastructure)
– Very little effort taken (Athukorala, n.d). Reintegrating the diaspora to national development. Social safety to the left at home.
Hemesiri Kotagama
Enhancing Effectiveness of Remittance Channeling: Stick and Carrot
Stick approach has failed – South Korea enforced a law that 80% of
earnings should be remitted. ( Similar efforts by Philippines, Pakistan, Thailand, Bangladesh).
– In 2002 Sri Lanka announced to impose 15% tax on the US $ 1.2 billion remittance received each year. Was quickly withdrawn.
Migration News, January 2003.
Hemesiri Kotagama
Enhancing Effectiveness of Remittance Channeling: Stick and Carrot
Carrot approach continues– Tax free purchases on return. Does not encourage
investments. Siphons out foreign exchange.– Repatriable foreign currency accounts (NRFC). Ineffective
as interest rates and other fringe benefits are not competitive.
– Foreign currency denominated bonds “Resurgent Indian Bonds: 1998” IR 7.75% US $ +
concessions to buy prime land. Used to fund infrastructure projects.
Sri Lanka Nation Building Bonds: 2006, IR 4.45% US$ + concessions to buy a car. Used to fund infrastructure projects (airport, highways).
Hemesiri Kotagama
Mobilizing Remittance to Productive Investments: International Experience
Bulk of remittances spent on consumption and household commodities.
Pakistan on buying land. Upgrading housing. Has a multiplier effect of 3 (Mexico). Substantial amounts are spent on education of children. Each migrant worker creates 3 local jobs (Bangladesh). Eases local unemployment. Investments on Public infrastructure ?
– Sri Lankan Nation Building Bond is a hope for the future.
Hemesiri Kotagama
Summary
A nexus is developing between national development and foreign remittance.
A paradigm shift: Shame to Fame on foreign employment. Impact of remittance on development depends on effective
mobilization and judicious investment. Sri Lankan Nation Building Bonds being directed to
mobilizing foreign remittance towards infrastructure investment is indeed an judicious development strategy.
We wish it success in developing our nation, materially, equitably, qualitatively, righteously, in a sustainable and participatory manner.
Hemesiri Kotagama
Acknowledgement of sources of information
Central Bank of Sri Lanka, Website. www.cenwor.lk International Organization for Migration (2003)
Migration and Development: A Perspective from Asia.
World Bank (2005) Sri Lanka’s Migrant Labor Remittances: Enhancing the Quality and Outreach of Rural Remittance Infrastructure.
World Bank (2005) Migrant Labor Remittances in the South Asia Region.
Hemesiri Kotagama
Thank you very much …
His Excellency the Sri Lankan Ambassador for inviting me to speak on this nationally important issue.
The audience for sharing knowledge.
Hemesiri Kotagama
Pleasure of love is in sharingValue of knowledge is in sharing …
Hemesiri Kotagama
Top Related