Leveraging Remittances for Leveraging Remittances for Development and Poverty Development and Poverty

AlleviationAlleviation

Mr. Diwa C. GuinigundoMr. Diwa C. GuinigundoDeputy GovernorDeputy Governor

Bangko Sentral ng PilipinasBangko Sentral ng Pilipinas

International Forum on Remittances 2007International Forum on Remittances 2007Washington D.C.Washington D.C.

18-19 October 200718-19 October 2007

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Outline of Presentation

Global trends in migration and remittances

Development perspective on remittances

The Philippines experience with remittances and its impact on development and poverty alleviation

Policy thrust of the BSP to harness remittances for development

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Global Flows on International Migrant Global Flows on International Migrant RemittancesRemittances(US$ billion)(US$ billion)INFLOWS 2000 2001 2002 200

3200

42005 2006e Change

2005-06 (%)

Change2001-

06(%)

All developing countriesLow-income countriesMiddle-income Lower MICs Upper MICsEast Asia and the PacificEurope and Central AsiaLatin America and the CaribbeanMiddle-East and North AfricaSouth AsiaSub-Saharan AfricaHigh income OECD

World

8522634320171320

13175

46

132

9626704822201324

15195

50

147

11732856123291428

16245

52

170

14540

1057530351735

21316

59

205

16341

1238637392341

23307

66

230

18846

1429547443148

24357

68

257

19947

15210151453253

25367

68

268

6276935

12

5300

3

10781

116110128125149119

64866237

83

OUTFLOWS 2000 2001 2002 2003

2004

2005 2006e Change2004-05

(%)

Change2001-

05(%)

All developing countriesHigh income OECDHigh income non-OECDWorld

127622

110

148322

118

218822

131

259821

144

3211120

163

3711921

177

17759

16144-350

Source: Migration and Development Brief 2, World Bank Development Prospects Group

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Remittance-Receiving Countries By Region Remittance-Receiving Countries By Region (2006)(2006)

South Asia18%

Sub-Saharan Africa4%

Middle-East and North Africa

13%

Latin America and the Caribbean

26%

Europe and Central Asia

16%

East Asia and the Pacific23%

Source: World Bank Global Development Prospects 2006

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Remittances

Macroeconomic impact

Strengthen BOP position

Raise international reserves

Increase domestic consumption

Contribute to Financial sector development

Household impact

Alleviate poverty

Higher Human capital investment

Improve living conditions

Development Perspective Development Perspective on Remittances Remittances

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Migration and Remittances: The Migration and Remittances: The

Philippine CasePhilippine Case

An estimated 8.2 million Filipinos are now working or living abroad

Philippines receive large remittance inflows from overseas Filipinos (OFs)

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Top Remittance-receiving Countries, Top Remittance-receiving Countries, 20062006(in US$ billions)(in US$ billions)

27.5

24.722.5

12.8 12.6

8.97.3 7.2 6.7

5.5

Source: World Bank Global Development Prospects 2006

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Growth in OF RemittancesGrowth in OF Remittances

0

5000

10000

15000

2000 2001 2002 2003 2004 2005 2006 Jan-July2007

-5

0

5

10

15

20

25

30

Remittances Grow th rate

Source: Bangko Sentral ng Pilipinas

Average annual growth rate of 11.7 percent between 2000 and 2006

Expected growth rate of 10 percent in 2007

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LevelLevel(in US$ (in US$

Bil)Bil)1/1/

GrowtGrowth Rateh Rate

(%)(%)

Remittances as % of:Remittances as % of:

GDPGDP XGSXGS FDIFDI GIRGIR DSBDSB

2000

6.05 -10.9 8.0 14.9 270.1 40.2 96.6

2001

6.03 -0.3 8.5 17.5 3092.8 38.4 92.4

2002

6.89 14.2 9.0 18.2 446.6 42.1 88.7

2003

7.58 10.1 9.5 19.6 1543.4 44.4 95.3

2004

8.55 12.8 9.9 20.0 1242.7 51.7 118.5

2005

10.69 25.0 10.9 23.9 576.5 57.8 142.2

2006

12.76 19.4 10.9 24.7 544.2 55.6 161.5

2007

8.13(J-July)

16.0 10.7(J-Jun)

25.4(J-Jun)

573.7(J-Jun)

29.0(end-July)

204.8(J-Jun)

1/ Cash remittances coursed through the banks

Macroeconomic Impact of OF RemittancesMacroeconomic Impact of OF Remittances

99

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Allocation of remittance Allocation of remittance incomeincome

Food, utilities and other expenses for household operations

Education, medical/health care expenses Consumer durables Improving or building housing; buying real

estate Loan repayments (including loans to pay

for migration costs) Income-generating or livelihood activities; Savings

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Empirical Evidence on the Impact of Remittances on Poverty in the

Philippines Household surveys show that a 10

percent increase in remittances:

reduces poverty rate by 2.8 percent;

increase school attendance by 1.7 percent;

decrease child labor per household per week by 0.35 hour; and

raise entrepreneurial activities by 2 percent.

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Empirical Evidence on the Impact of Remittances on Poverty in the Philippines (contd)

Remittances positively affect the well-being of the poorest households (bottom 20 percent; 1st quintile);

Magnitude of the impact of remittances rises with the income quintiles (2nd-4th quintiles);

Effect of remittances becomes insignificant for the richest 20 percent of families.

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Enhance transparency and promote competition in the remittance market

Improve access to financial services

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Principles to Improve the Remittance

Environment

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What the BSP Has Done

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Promoted competition and transparency

Required banks and non-banks to post remittance charges and other relevant information in institutions’ premises and websites

Launched the OFW web portal linking to banks’ relevant web pages on remittance services and products, branches and remittance centers, services fees/rates

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1515

(in US $, including FX mark-up)

Source of Remittance USA United Kingdom Singapore

Ave. Amt. of Remittance per transaction 400 600 200

  2000 2006 2000 2006 2000 2006

1. Credit to Account (Own Bank) 8.00-12.00 7.09-11.59 9.48-13.96 7.85-11.73 3.82 2.94-3.76

2. Credit Other Local Bank 8.00-17.00

10.09-14.59 10.97-18.74 9.70-13.58 3.82 2.94-3.80

3. Door-to-Door:            

Metro Manila 14.00-17.00

12.09-14.59 13.96-23.53 9.70-15.42 6.71 4.40-6.79

Provinces 16.00-19.00

14.09-17.59 13.96-23.53 9.70-17.27 9.60 4.99-9.82

4. Advice and Pay * 8.00-16.00 8.09-14.18 10.97-18.74 7.71-15.42 3.82 3.76-4.76

*The bank notifies the beneficiary of the remittance by phone; the beneficiary picks up the remittance from the nearest branch.

Survey of Remittance Charges

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What the BSP Has Done (contd)

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Improved payment and settlement systems and access to financial services

Authorized rural banks to accept foreign currency deposits

Approved interconnection of 3 ATM networks (Megalink,Bancnet, Expressnet)

Approved use of alternative modes of remittances, e.g., internet, short messaging system

Clarified the acceptable IDs for financial transactions particularly for OFs’ beneficiaries in remote areas

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Channeling Remittances to

Productive Uses

Procyclicality of OF remittances

Remittances cannot be treated as buffer for macroeconomic shocks

OFs motive for remitting is predominantly profit-driven or investment related

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Promoted financial learning

Conducted Financial Learning Campaigns (FLCs) in 13 major cities around the country since February 2006, with 2 more in 2007

Channeling Remittances to Productive Uses (contd)

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PESO REMITTANCEPESO REMITTANCE

CONSUMPTIONCONSUMPTION SAVINGSSAVINGS SMEs/MICROFINANCESMEs/MICROFINANCE

Bank instruments (TD/SD/Bank instruments (TD/SD/Mutual funds/UITF)Mutual funds/UITF)

P5,000 up P5,000 up

Savings in CooperativesSavings in CooperativesTD/SDTD/SD

P5,000 upP5,000 up

Treasury instrumentsTreasury instrumentsT-bills, T-notesT-bills, T-notesP100,000 upP100,000 up

Stock MarketStock Market

Insurance (life, non-life,Insurance (life, non-life,Education, pension)Education, pension) Real EstateReal Estate

OthersOthers

Agri-businessAgri-business

Retail businessRetail business

Lending businessLending business

OthersOthers

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Microfinance advocacy Assist in the channeling of

remittances to productive uses in rural areas

Facilitate access to basic financial services

Channeling Remittances to Productive Uses (contd)

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Website:www.bsp.gov.phE-mail: bspmail@bsp.gov.ph