Wealthy countries turn back on leading anti-poverty solution: Remittances

Somali men walk in front of a branch of Dahabshiil, Somalia's largest remittance company, in Mogadishu, Somalia. (AP Photo/Farah Abdi Warsameh)

The amount of money sent home by migrants and refugees from developing countries exceeds foreign aid – making migration a powerful anti-poverty tool.

Despite this overwhelming evidence, countries are shutting their doors to foreigners. The effort by Western governments to limit the entry of migrants and refugees is fueled by nationalism and rising inequality … and a fair amount of misinformation.

“Migration is overwhelmingly beneficial but there are some costs that bias public perceptions towards the negative,” Dilip Ratha, the head of the Global Knowledge Partnership on Migration and Development, said in a statement. “As the global community prepares to define a global compact on migration by 2018, game-changing ideas are needed to harness the benefits and mitigate the risks associated with migration. Viewing migration through a common lens of reducing poverty and boosting prosperity can provide a unifying framework for a comprehensive response.”

Migrants sending money home, or remittances, are credited as a leading reason poverty in Nepal fell at one of the fastest rates in the world between 2003 and 2011. Remittances as a share of GDP grew from less than 5 percent of Nepal’s GDP to nearly 30 percent since 2000. Everyone in the country benefited from the sudden rise, even households that did not directly get money, according to the World Bank.

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It is a similar story elsewhere in the world. Remittances represent roughly one-quarter of the economies in Tajikistan, Tonga, Liberia and Haiti. And like Nepal, many low- and middle-income countries experienced rapid increases in remittances over the past two decades. That progress is slowing down, according to World Bank projections.

Remittances to low- and middle-income countries grew an estimated 0.8 percent in 2016 because economic growth slowed in wealthy countries. A recent World Bank report projected that the rate will not increase for some time.

“This ‘new normal’ of weak growth in remittances could present challenges for millions of families that rely heavily on these flows,” Augusto Lopez-Claros, director of the World Bank’s Global indicators group, said in a statement. “This, in turn, can seriously impact the economies of many countries around the world bringing on a new set of challenges to economic growth.”

Like cash transfers, remittances are a direct way to help people cope with natural disasters and other humanitarian emergencies. Expats and diaspora are leading individual contributors after events like the 2010 Haitian earthquake and the 2013 typhoon in the Philippines.

One way the world is trying to help extend the impact of remittances is by pledging to reduce transfer fees from an average of 7 percent for every $200 sent to below 3 percent. Money transfer companies waived fees completely after disasters in Haiti, Philippines and Nepal.

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On the other hand, efforts to keep people out and in some cases expel refugees and migrants will reduce remittances. Europe is working with African countries to take migrants attempting to reach the continent. Some of the deals are negotiated alongside new aid contracts. The bigger impacts are within regions, which is where most migration takes place.

U.S. rules to limit Latin American migration and the U.K.’s plan to leave Europe have the greatest impact on global remittance numbers. Anti-immigrant sentiment among populist candidates fuel public concerns caused by uneven economic growth. The resulting policies hamper one of the most effective anti-poverty tools.

“Despite the documented benefits of immigration, many people and policymakers in destination countries fear that immigration leads to loss of jobs, imposes heavy burdens on public services, erodes social cohesion, and increases crime levels. These negative perceptions are factually incorrect or overblown,” Ratha wrote in a blog post for the World Bank.

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.