Remittances Require Better Management
11 January, 2012
Remittances Require Better Management

According to the research of the EPRC aired on January 9, 2012, international remittances, Remittances that outweigh the inflow of grants and Foreign Direct Investments 2.5 times in Georgia require better management to be a more efficient economic tool, the Economic Policy Research Center (EPRC) believes.
Otherwise personal money transfers sent by migrants to their families and friends constitute 6% of Georgia’s GDP and outweighs the inflow of grants and Foreign Direct Investments (FDIs) 2.5 times in Georgia while unlike

FDI and different sources of official development assistance remittances are not characterized by counter-flows in the forms of interest, debt and dividend payments.

The EPRC experts think the positive impact of remittances in the country is not utilized as efficiently as it can be based on the best world practice.
Georgia is a small country that has seen a significant outflow of migrants [according to the estimates of the World Bank the number of Georgian migrants exceeds one million] and at the same time there is a large inflow of foreign currency. Unofficial remittances are large and amount to roughly 40% of the total amount of remittances.

With more than 215 million people living outside their countries of birth, remittances sent home by migrants accounted for 2 % of GDP for all developing countries in 2008, but 6% of GDP for low-income countries including Georgia. As of September 2011, the amount of remittances transferred to Georgia amounted to USD 812.6 million [while the FDI inflow in three quarters of 2011 accounted for USD 633 million by preliminary statistics] which is a 19.6% increase compared to the same period last year. Roughly, 9% of the population is remittance recipient. For financial institutions, 20% of their net income is from money transfer payments, although they are competing with a very large informal sector (an estimate of one third) i.e. remittances sent through friends, relatives, etc.

As a result of the global financial crisis the amount of remittances has significantly decreased to all developing countries including Georgia. However after a slight decrease in 2009 the volumes are now recovering. The third quarter data of 2011 show no decreasing trend. A slight decrease in remittances is seen from Spain, Turkey, Ukraine and the Russian Federation.
“Some economists argue that remittances can be carriers of economic shocks, however there is a compelling evidence suggesting that remittances being of considerable assistance during economic slowdowns are sources of finance,” Nino Evgenidze, Director Executive of the EPRC, told Georgian Journal.

Migrant transfers can ease the immediate budget constraints on substantial things like food, health care, and schooling expenses, although due to their unpredictable nature they cannot substitute domestically generated income. Nonetheless remittances tend to be more stable than private capital flows, thus diversifying the external financing means of the country. Especially if the country of origin and the host country are economic cycles have relatively low correlation - which is the case in Georgia.
“We argue that when managed and used properly remittances can be used as sources of growth and development, thus overcoming the negative aspects and turning them into a potential growth opportunity.  Understanding the effect and importance of remittances and exploring ways of forming a more effective policy for managing them is of vital importance,” Evgenidze said.

Remittances have two stakeholders, the senders and recipients, although the government is an important actor of giving a potential role to remittances in the country by creating a sound institutional framework for enhancing the development impact of them. Remittances not only provide the recipient households with means to finance their basic needs, but they have to contribute to economic development at the local, regional and national levels.
To form the effective policy for remittance management the EPRC recommends reaching out to three key players (except the remittance recipients) the Government of Georgia, commercial banks and the National Bank of Georgia (NBG).
To Georgian government the EPRC recommends strengthening communication and relations with Georgian Diaspora in various countries; organizing business forums for supporting Diaspora investments; developing specific activities and programs for enhancing knowledge transfer networks with the successful and skilled Diaspora members.

Government should insure strong national education system to channel remittances to productive sectors of economy as well as create conducive entrepreneurial and investment climate to establish the sense of stability in businesspeople.
To the NBG the non-governmental watchdog recommends issuing the so-called Diaspora bonds and marketing them to the migrants in developed countries that may tackle the problem of lack in savings. The money raised through these bonds is used to finance important infrastructure, social or economic aspects in developing countries that increases living standards of local population.
Commercial banks are advised to provide specialized banking services to non-residents, as well as promote other financial products, persuading the remittance receivers in benefits to have savings account/deposits by means of offering financial services such as credit line, mortgage opportunities.
“Banks should view remittances as a source of income for unemployed people, thus giving them an opportunity to receive loans. This can increase the number of remittances sent through formal [banking] channels,” Evgenidze said.

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