Improving the quality of remittance statistics through the analysis of bilateral asymmetries
International Meeting on Measuring Remittances
Washington DC, June 11-12, 2009
by
G. Giuseppe Ortolani (speaker) – Banca d’ItaliaEvis Rucaj – World Bank
Bilateral asymmetries & remittances Overview
Objective: explore potentialities of the analysis of bilateral asymmetries to improve the quality of statistics on remittances
1 – Background2 – Asymmetries in BoP3 – Why analysing asymmetries on remittances ?4 – Bilateral comparison on the Italy-Albania remittance corridor5 – Conclusive remarks
Bilateral asymmetries & remittances
1Background
Bilateral asymmetries & remittancesBackground
Policy and analytical interest on remittances has increased dramatically since 2004 (G8 meeting of Sea Island, meeting of G7 Finance ministers,…)
Three important outcomes:1. The improvement of concept and definitions of remittances (4 new
concepts, incorporated in BPM6).2. Guidance of countries in data collection: compilation guide by the
Luxembourg Group on Remittances.3. Overall improvement of the quality of remittances data, through the
revision of data collection and compilation methods in many countries.
Currently: priority on point 3., i.e. need to pursue efforts to improve data quality (G8 Summit in Hokkaido Toyako, Global Remittances Working Group)
Paper deals with bilateral asymmetries as a tool to improve quality
Bilateral asymmetries & remittances
2Asymmetries in BoP
Bilateral asymmetries & remittancesAsymmetries in BoP
Typical feature of BoP: two measures available for each phenomena (eg. sale of a service by country A to country B, export (BoP credits) for country A, import (BoP debits) for country B
The two measures are never identical. Reasons: differences in1. Data collection systems (sources, methods)2. Classification in BoP items3. Time of recording4. Identification of country of residence of counterpart5. Treatment of complex transactions (e.g. more than 2 transactors
involved)
At the world level, BoP credits <> BoP debits -> global discrepancy
Large asymmetries raise doubts about quality (accuracy) and credibility of statistics
Bilateral asymmetries & remittancesAsymmetries in BoP
Much work carried out in Europe in the analysis of asymmetries in BoP.
Reasons: » a consolidated BoP is legally required (EU or euro area level);
» it is produced through consolidation of individual EU MS BoPs, hence
» the evidence of large asymmetries seriously hampers the confidence about the quality of consolidated statements.
Bilateral asymmetries & remittancesAsymmetries in BoP
Two approaches to reduce asymmetries in Europe:
1. Top-down approach
o transforming original figures through a mathematical / statistical model; implemented by central region institutions (e.g. Eurostat, ECB). Emphasis on finding the “right” model.
2. Bottom-up approach
o In-depth comparison of the two countries’ data collection methods, definitions, micro-data and agreement on the figures to be published; carried out by compilers of the two countries. Emphasis on analysing the situation and negotiating the “best” bilateral figures.
Bilateral asymmetries & remittancesAsymmetries in BoP
None of the two approaches has clearly prevailed:
1. Top-down approach
o PROS cost-effective and fast
o CONS changes figures “artificially” causes loss of coherence between national an regional figures
2. Bottom-up approach
o PROS more evidence-based no loss of coherence between national an regional figures
o CONS time consuming and resource intensive
Bilateral asymmetries & remittancesAsymmetries in BoP
The paper, in relation to remittances, favours the bottom-up approach, because:
• Asymmetries in remittances are so large that the top-down approach would just produce “fake” figures
• The bottom-up approach tends to solve asymmetries permanently
• The bottom-up approach is of more general usability (top-down mostly tailored for “highly formalised economic regions”)
Bilateral asymmetries & remittances
3Why analysing asymmetries on remittances ?
Bilateral asymmetries & remittancesWhy analysing asymmetries on remittances ?
The analysis of bilateral asymmetries can help improving the quality of statistics on remittances, because:
1. Remittances are difficult to measure:
o Huge quantity of small transactions, complex payment schemeso Relevant role of informal remittance service providerso Unavailability of accurate information on population of migrants
(relevant presence of hard-to-count subjects: illegal immigrants, etc.)
2. Asymmetries are huge and increasing at the global level
Bilateral asymmetries & remittancesWorld balance of payments – Gross flows (USD mln, left scale) and relative
asymmetries (%, right scale) for “Compensation of employees (CoE)” and “Workers’ remittances (WR)”. 2001-2007
0
20,000
40,000
60,000
80,000
100,000
120,000
2001 2002 2003 2004 2005 2006 2007-60%
-40%
-20%
0%
20%
40%
60%
C o E
0
50,000
100,000
150,000
200,000
250,000
2001 2002 2003 2004 2005 2006 2007-60%
-40%
-20%
0%
20%
40%
60%W R
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2001 2002 2003 2004 2005 2006 2007-60%
-40%
-20%
0%
20%
40%
60%
C o E + W R
Debits
Credits
Source: Authors’ elaboration of IMF data
Rel. asym.
Bilateral asymmetries & remittancesWorld balance of payments. Global discrepancies by main current account aggregates. Relative asymmetries. 2007
SERVICES
INCOME
o/w: Compensation of
employees
CURRENT TRANSFERS
o/w: Workers' remittances
CURRENT ACCOUNT
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Rel
. asy
m.
Source: Authors’ elaboration of IMF data
GOODS
o/w: Travel
o/w: Transportation
Bilateral asymmetries & remittances
4Bilateral comparison on the Italy-Albania remittance corridor
Bilateral asymmetries & remittancesBilateral comparison on the Italy-Albania remittance corridor
Goal: provide hints about the evidences that the bottom-up approach to asymmetries can bring to compilers
Exercise NOT meant to represent an exhaustive study or fully-fledged bottom-up analysis
Analysis limited to Workers’ Remittances (Compensation of Employees excluded)
Feature of the corridor: dominated by the physical transfer of cash. Estimated that 60% of remittances from Italy are in cash, the rest through MTOs (mostly) and banks. Mainly because of geographical proximity of the two countries.
Bilateral asymmetries & remittancesBilateral comparison on the Italy-Albania remittance corridor
ITALY A net remittance-recipient until the 90s, now one of the main net senders (€6.4
billion in 2008). Albania ranks at the 9th place as a remittance destination country for Italy (according to Italy’s data).
DATA COLLECTION SYSTEM Data producer: central bank (Bank of Italy) Since 2006, data compiled through direct reports of MTOs; this source
replaced the old ITRS system, heavily biased as for level and geo breakdown MTO are surveyed on a census basis (around 30 agents), data are reported
monthlyWEAKNESSES OF THE SYSTEM Remittances through channels different from MTOs are not covered; this
implies, in particular, the relevant lack of coverage of informal remittances Business-to-person and business-to-business transactions may be
erroneously included Unable to reliably exclude payments of short-term workers (non BoP)
Bilateral asymmetries & remittancesBilateral comparison on the Italy-Albania remittance corridor
ALBANIA A net remittance-recipient (around €1 billion in 2007, 12% of GDP, twice the
FDI inflows). Inflows mainly from Italy (43%) and Greece (42%), cover 45% of the high trade deficit.
DATA COLLECTION SYSTEM Data producer: central bank (Bank of Albania) System = combination of three sources
» Inflow-outflow model» Banking system & MTOs» Household survey
WEAKNESSES OF THE SYSTEM Given large scale of Albania’s informal economy, inflows may be mistakenly
identified as remittances in cash instead that as other types of flows originating from informal economic activities
Concerns about methodological issues of the household survey
Bilateral asymmetries & remittances Bilateral comparison on the Italy-Albania remittance corridor
2005 2006 2007 2008Remittance inflows from Italy (euro millions)Source: Bank of Albania
372 429 411 350
Remittance outflows to Albania (euro millions)Source: Bank of Italy
119 139 144 143
Absolute asymmetry 253 290 267 207
Relative asymmetry 103% 102% 96% 84%
Workers’ remittances flow from Italy to Albania. Comparison of bilateral figures.
Bilateral asymmetries & remittances
5Conclusive remarks
Bilateral asymmetries & remittances Conclusive remarks
Even a rather superficial analysis of bilateral figures and partner countries’ methodologies can lead to the identification of main sources of discrepancies (e.g. different coverage of informal remittances).
A fully-fledged bilateral comparison, time and resource intensive exercise, consists of two phases:
1. In-depth analysis of the two countries’ concepts, definitions, data collection and compilation methods.
2. Actions and decisions to harmonise countries “theories and practices” and to agree closer estimates of bilateral flows.
Bilateral asymmetries & remittances Conclusive remarks
Four suggestions about possible future actions at the national and the international level to reduce remittance asymmetries:
1. Countries endeavour to collect and publish geographically broken down remittance figures
2. Countries bilateral data should be efficiently disseminated. A worldwide international agency (e.g. the IMF or the World Bank) should act as a data-hub for remittance statistics, systematically collecting data from countries and disseminating them to compilers, building and maintaining a full data matrix of bilateral flows
3. The bilateral work of country pairs should give priority to main corridors or country pairs with largest bilateral asymmetries, if bilateral data are already available
4. International agencies and developed countries should encourage and help the relevant developing countries undertaking the bilateral comparisons, considering also the provision of technical and financial support when needed
Bilateral asymmetries & remittances
Thank you !