Remittances turn key for countries

India and China have the highest emigrant populations in the world and have received the largest amount of remittances, with India alone accounting for more than a quarter of the Asian total, data available with the Asian Development Bank ( ADB) showed.

According to ADB, International remittances, or monies and goods sent by migrant workers to their home countries, now represent the second most important source of external funds after foreign direct investment for all developing economies, including those in Asia.

Between 2005 and 2014, India piped China to become the largest recipient of remittances from migrant workers. During the period remittances to India had increased from $ 22.1 billion to $ 70.4 billion. In 2005, China was slightly ahead of India with an annual remittance of $ 23.6 billion, which increased to $ 62.3 billion in 2014.

With increase in remittances, ADB said that the number of people living below the World Bank poverty line of less than $ 1.90 a day at 2011 international prices has dropped sharply in recent decades.

A study conducted by ADB using data from 10 Asian countries between 1981 to 2014 revealed that a 1 per cent increase in international remittance flows as a percentage of GDP can lead to a 22.6 per cent decline in poverty gap ratio and a 18.3 per cent decrease in the poverty severity ratio.

The finding that remittance levels actually do help reduce poverty according to ADB has clear implications for policymakers one of which is how to reduce transaction costs for migrant workers sending money to their home countries.

These fees vary significantly depending on where money is being sent from and what payment method is used.

The data shows that costs are typically higher when funds are sent to developing economies while Internet payment systems typically incur higher charges than other methods. “Policymakers should support cooperation between international banking services and remittance transfer operators, and the creation of a dedicated Internetbased remittance transfer network. These measures would reduce costs, boost incomes and ultimately help speed up poverty reduction in countries with substantial migrant worker populations,” it said.