Leveraging Remittances for Development and Poverty Alleviation Mr. Diwa C. Guinigundo Deputy Governor Bangko Sentral ng Pilipinas International Forum on Remittances 2007 Washington D.C October 2007

2 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

3 Global Flows on International Migrant Remittances (US$ billion) INFLOWS eChange (%) Change (%) All developing countries Low-income countries Middle-income Lower MICs Upper MICs East Asia and the Pacific Europe and Central Asia Latin America and the Caribbean Middle-East and North Africa South Asia Sub-Saharan Africa High income OECD World OUTFLOWS eChange (%) Change (%) All developing countries High income OECD High income non-OECD World Source: Migration and Development Brief 2, World Bank Development Prospects Group

4 Remittance-Receiving Countries By Region (2006) Source: World Bank Global Development Prospects 2006

5 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 Remittances Development Perspective on Remittances

6 Migration and Remittances: The Philippine Case  An estimated 8.2 million Filipinos are now working or living abroad  Philippines receive large remittance inflows from overseas Filipinos (OFs)

7 Top Remittance-receiving Countries, 2006 (in US$ billions) Source: World Bank Global Development Prospects 2006

8 Growth in OF Remittances 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

9 Level (in US$ Bil) 1/ Growth Rate (%) Remittances as % of: GDPXGSFDIGIRDSB (J-July) (J-Jun) 25.4 (J-Jun) (J-Jun) 29.0 (end- July) (J-Jun) 1/ Cash remittances coursed through the banks Macroeconomic Impact of OF Remittances 9

10 Allocation of remittance income  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

11 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.

12 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; 1 st quintile);   Magnitude of the impact of remittances rises with the income quintiles (2 nd -4 th quintiles);   Effect of remittances becomes insignificant for the richest 20 percent of families.

13   Enhance transparency and promote competition in the remittance market   Improve access to financial services 13 Principles to Improve the Remittance Environment

14 What the BSP Has Done 14   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

15 15 (in US $, including FX mark-up) Source of RemittanceUSAUnited KingdomSingapore Ave. Amt. of Remittance per transaction Credit to Account (Own Bank) Credit Other Local Bank Door-to-Door: Metro Manila Provinces Advice and Pay * *The bank notifies the beneficiary of the remittance by phone; the beneficiary picks up the remittance from the nearest branch. Survey of Remittance Charges

16 What the BSP Has Done (contd) 16   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

17 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

18 18   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)

19

20  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)

21 Website: