Remittances’ Regional Working Theories

The World Bank’s biannual update on migration and remittances points to an almost 10% jump in 2018 on the latter to $530 billion for low and middle-income countries, with double digit increases to Central and South Asia, although the pace is projected to slow this year for a $550 billion total. The sum exceeds foreign direct investment and official development assistance, with the biggest regional recipients China and India averaging $75 billion, followed by the Philippines and Pakistan at $35 billion and $20 billion respectively, and Bangladesh and Vietnam each with $15 billion. As a slice of gross domestic product the Kyrgyz Republic, Tajikistan and Nepal top the global pack at 30-35%, while by sub-region East and South Asia are roughly even with $150 billion in inflows for 4% annual growth.

 Emerging markets in the Gulf, Russia and China are also large outflow sources, with Saudi Arabia and the United Arab Emirate both accounting for $40 billion, compared with the US’ leading tally of $70 billion. While overall emerging economy economic growth should be “stable” this year, the publication highlights “downside risks” including commodity and geopolitical swings and trade and anti-immigration curbs. The 4% estimated annual spurt, less than half last year’s clip, is also due to stubborn remittance costs still at 7%. Correspondent banks continue to “de-risk” in the developing world under anti-money laundering and terror financing mandates, superseding the 3% Sustainable Development Goal.

South Asia has the lowest cost average at 5%, around half Sub Sahara Africa’s. Banks are the priciest intermediaries, and national post offices in exclusive relationships as in India also impose a premium. The International Labor Organization is spearheading a parallel effort to reduce recruitment charges, and ministers from a dozen Asian countries recently committed to a “zero cost” processing goal. Excessive fees resulted in Nepal’s emigration suspension into Malaysia last year before a new bilateral pact was signed.

 According to the United Nations worldwide migrants and refugees combined are 270 million, and nationalization policies in Gulf Cooperation Council hosts translated into 30% job shrinkage from Bangladesh and Pakistan. Japan agreed to admit 350,000 skilled workers from ASEAN and Indochina over the next five years. Thailand in contrast has deported tens of thousands of undocumented entrants from Cambodia and Myanmar. A 2018 Global UN Compact on Migration was endorsed throughout Asia to standardize family, money transfer and employment practices, but is at an early stage and not legally binding since a treaty was a political non-starter.  

The East Asia-Pacific region’s remittance toll is at the global 7% median, with Thailand’s the steepest at 15%.  Cambodia has started to send nationals to Kuwait, and Japan is the fastest-growing destination for Vietnamese, absorbing half the 140,000 in formal work abroad programs last year. Central Asian low-skill migrants benefited from Russian economic recovery, with Uzbekistan’s $4 billion the remittance leader. In Pakistan and Sri Lanka 2018 inflows were only “moderate” with a 5% increase, as both were dropped from cross-border banking networks on “strategic deficiencies” described by the anti-laundering Financial Action Task Force. This balance of payments support was over 5% of GDP, and in a last-ditch measure to shore up reserves before turning to outside bilateral and multilateral lines, Pakistan’s government introduced a retail investor instrument to attract worker foreign exchange. It was tax exempt and brought in $1 million on a $5000 minimum allocation immediately after launch, but hardly changed the negative net position forcing another International Monetary Fund rescue.

Through the end of June, Pakistan was the worst performer on the Morgan Stanley Capital International core emerging market index with a 17% fall, as the details of the $6 billion 3-year IMF arrangement were finalized. Prime Minister Imran Khan reversed initial defiance when he could only gain limited relief from Gulf and China allies also recognizing “misaligned economic policies,” in the words of the Fund’s staff report. Fiscal deficits and an easy monetary stance, runaway public debt and weak tax collection, and exchange rate overvaluation and international reserve depletion are among the mistakes demanding “urgent action” with release of the first $1 billion installment. The currency moves toward a float and banks will strengthen anti-laundering safeguards under the latest program, with steady remittances also a question of the Khan team honoring its sudden remit.