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’Italia Evis Rucaj – World Bank

Bilateral asymmetries & remittances Overview l Objective: explore potentialities of the analysis of bilateral asymmetries to improve the quality of statistics on remittances 1 – Background 2 – Asymmetries in BoP 3 – Why analysing asymmetries on remittances ? 4 – Bilateral comparison on the Italy-Albania remittance corridor 5 – Conclusive remarks

Bilateral asymmetries & remittances 1 Background

Bilateral asymmetries & remittances Background l Policy and analytical interest on remittances has increased dramatically since 2004 (G8 meeting of Sea Island, meeting of G7 Finance ministers,…) l 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. l Currently: priority on point 3., i.e. need to pursue efforts to improve data quality (G8 Summit in Hokkaido Toyako, Global Remittances Working Group) l Paper deals with bilateral asymmetries as a tool to improve quality

Bilateral asymmetries & remittances 2 Asymmetries in BoP

Bilateral asymmetries & remittances Asymmetries in BoP l 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 l The two measures are never identical. Reasons: differences in 1.Data collection systems (sources, methods) 2.Classification in BoP items 3.Time of recording 4.Identification of country of residence of counterpart 5.Treatment of complex transactions (e.g. more than 2 transactors involved) l At the world level, BoP credits <> BoP debits -> global discrepancy l Large asymmetries raise doubts about quality (accuracy) and credibility of statistics

Bilateral asymmetries & remittances Asymmetries in BoP l Much work carried out in Europe in the analysis of asymmetries in BoP. l 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 & remittances Asymmetries in BoP l 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 & remittances Asymmetries in BoP l 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 & remittances Asymmetries in BoP l 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 3 Why analysing asymmetries on remittances ?

Bilateral asymmetries & remittances Why analysing asymmetries on remittances ? l 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 schemes o Relevant role of informal remittance service providers o 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 & remittances World balance of payments – Gross flows (USD mln, left scale) and relative asymmetries (%, right scale) for “Compensation of employees (CoE)” and “Workers’ remittances (WR)” C o E W R C o E + W R Debits Credits Source: Authors’ elaboration of IMF data Rel. asym.

Bilateral asymmetries & remittances World balance of payments. Global discrepancies by main current account aggregates. Relative asymmetries Source: Authors’ elaboration of IMF data GOODS o/w: Travel o/w: Transportation

Bilateral asymmetries & remittances 4 Bilateral comparison on the Italy-Albania remittance corridor

Bilateral asymmetries & remittances Bilateral comparison on the Italy-Albania remittance corridor l Goal: provide hints about the evidences that the bottom-up approach to asymmetries can bring to compilers l Exercise NOT meant to represent an exhaustive study or fully- fledged bottom-up analysis l Analysis limited to Workers’ Remittances (Compensation of Employees excluded) l 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 & remittances Bilateral comparison on the Italy-Albania remittance corridor ITALY l 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 l Data producer: central bank (Bank of Italy) l Since 2006, data compiled through direct reports of MTOs; this source replaced the old ITRS system, heavily biased as for level and geo breakdown l MTO are surveyed on a census basis (around 30 agents), data are reported monthly WEAKNESSES OF THE SYSTEM l Remittances through channels different from MTOs are not covered; this implies, in particular, the relevant lack of coverage of informal remittances l Business-to-person and business-to-business transactions may be erroneously included l Unable to reliably exclude payments of short-term workers (non BoP)

Bilateral asymmetries & remittances Bilateral comparison on the Italy-Albania remittance corridor ALBANIA l 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 l Data producer: central bank (Bank of Albania) l System = combination of three sources »Inflow-outflow model »Banking system & MTOs »Household survey WEAKNESSES OF THE SYSTEM l 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 l Concerns about methodological issues of the household survey

Bilateral asymmetries & remittances Bilateral comparison on the Italy-Albania remittance corridor Remittance inflows from Italy (euro millions) Source: Bank of Albania Remittance outflows to Albania (euro millions) Source: Bank of Italy Absolute asymmetry Relative asymmetry103%102%96%84% Workers’ remittances flow from Italy to Albania. Comparison of bilateral figures.

Bilateral asymmetries & remittances 5 Conclusive remarks

Bilateral asymmetries & remittances Conclusive remarks l 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). l 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 l 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 !