Inauguration speech by ADB President Takehiko Nakao at the ADB International Forum on Promoting Remittances for Development Finance on 18 March 2015 in Manila, Philippines
Distinguished guests, friends, speakers, ladies and gentlemen. It is a great honor to inaugurate this ADB international forum on Promoting Remittances for Development Finance.
In my remarks, I would like to highlight three points:
- First, there has been a dramatic growth in worker migration and remittances in the Asia and Pacific region, as well as world-wide.
- Second, there is significant room for maximizing the benefits of remittances for development.
- Third, in coordination with governments, ADB can play an active role in helping its developing member countries channel remittances toward productivity enhancing activities.
Growth of worker migration and remittances
With globalization, the number of people who leave their home countries to work abroad is on the rise. In 2014, more than 230 million people were living outside of their countries of origin. Over 90 million of these people were from the Asia and Pacific region.
Remittances are cross-border person-to-person payments. More specifically, remittances are personal flows of money from migrant workers to their families and relatives in their home countries. These remittances have grown substantially over the last decade.
Globally, remittances to developing countries are estimated at $435 billion in 2014, and projected to rise to $454 billion in 2015. For developing Asian and Pacific countries, remittances inflow is estimated at over $240 billion for 2014. However this figure is only the officially recorded amount. The actual size of remittances, including informal remittances, is believed to be much higher.
Remittances are important for Asia and the Pacific. In 2014, in terms of remittance volume, India ($71 billion), the People’s Republic of China ($64 billion) and the Philippines ($28 billion) ranked first, second and third in the world, respectively. In 2013, in terms of remittances as a percentage of GDP, Tajikistan (42%), Kyrgyz Republic (32%) and Nepal (29%) ranked first, second and third in the world, respectively.
Maximizing benefits from remittances
Generally, remittances can have positive impacts on the receiving countries. Remittances tend to be more stable than private capital flows, and may even be counter-cyclical relative to the recipient country’s economy. They tend to rise when the recipient economy is faced with an economic crisis, natural disaster, or political conflict, as migrants transfer more funds during hard times to help their families and relatives.
Remittances can reduce poverty levels and result in higher education and health expenditures by households. If the country has a good policy environment and well-functioning financial system, remittances can increase private credit and promote private sector growth.
However, we should not forget these benefits may come at a steep cost. Migrant workers often endure long working hours, harsh environments, fear of harassment, and other adverse working conditions. Many migrant workers are not properly covered by insurance or other protection in case of illness, accidents, or early termination of work contracts. Migrants often have to face broken family ties and other emotional stresses while abroad. In this respect, apart from today’s main theme of remittances, I want to emphasize the importance of supporting economic development of countries so that people can find quality jobs at home instead of being obliged to go abroad to work.
Remittances represent hard earned money by migrant workers. It is therefore important to channel remittances to improve the social and economic status of migrant workers and their households, as well as to contribute to the country’s development. Often, remittance receiving households tend to spend these on material items such as household appliances, food, and clothes, and have few savings products to invest in. This is largely because they often do not have access to banks, are outside of the formal financial system, or lack financial literacy.
If channeled through the formal financial system, remittances can be intermediated for public investment such as infrastructure, health, and education. In addition, diaspora bonds and securitization of remittances have become increasingly popular as a means to leverage resources for public investments.
ADB’s role to support remittances for development finance
To mobilize remittances for development finance, countries need to address multiple issues. First, migrant workers and their families should have access to formal financial services to channel remittances through the formal financial system. Second, accessible and reliable financial products and services need to be developed to promote savings and investments by remittance receiving households. Third, there should be an appropriate legal, regulatory, and policy framework to promote remittance linked debt securities or investment products.
ADB is committed to supporting member countries’ productive use of remittances to improve financial intermediation and investments. Specifically, ADB can support a country’s legal and regulatory framework in this area. ADB can also assist with payment systems, financial literacy, and innovative financial products to cater to the needs of migrant worker households, as well as the countries themselves.
We at ADB wish to develop partnerships with governments, public and private financial institutions, and non-governmental organizations for innovative transactions on this subject. One of the objectives in this forum is to capture the participants’ ideas for innovative transactions and projects to promote the use of remittances for development finance. For that, I look forward to your active and candid discussions.
Thank you and enjoy the forum.