The World Bank has some novel ideas for remittances coming into India, China, the Philippines, Mexico and Nigeria: build infrastructure.
Money sent home from citizens working overseas as engineers, teachers, nurses, sailors and domestic helpers reached about $583 billion last year, according to the World Bank. Of that, India received about $70 billion, China $64 billion and the Philippines $28 billion. And those are just the official flows.
Traditionally, this money has been used to send kids to school, pay for weddings, buy a car or build a home. Now, the World Bank wants migrants to put their hard-earned money to more productive use for their countries.
“Migration and remittances can be leveraged for innovative financing,” said Dilip Ratha, lead economist for migration and remittances at the World Bank’s Development Prospects Group. “I would love to see a bullet train system in India, an international airport in Nigeria, another Suez Canal in Egypt, a hydro-project in Pakistan, a community development program in the Philippines — all financed by mobilizing the power of remittances and diaspora savings.”
Remittances are critical: in the Philippines, they accounted for about 10 percent of GDP in 2013. Globally, they totaled more than double the official development assistance, or international aid last year. In addition, diaspora savings held by migrants from developing countries in their host nations were about $497 billion in 2013.
These investments can be mobilized through diaspora bonds marketed to overseas citizens, and future remittance flows can be used as collateral for international borrowings, Ratha said. Because these are large and more stable than many other types of capital flows, they can enhance a country’s sovereign credit rating, thus lowering borrowing costs and lengthening debt maturity.
Indeed, rating companies recently started accounting for remittances in their sovereign credit ratings, and the World Bank-IMF low-income country Debt Sustainability Framework includes them in evaluating the ability of countries to repay external obligations and undertake borrowings.
While the pace of remittance growth is expected to slow this year because of continued weakness in Europe and Russia and the depreciation of the euro and ruble, they are still seen rising to $586 billion. And the money will keep coming: $610 billion in 2016 and $636 billion in 2017, according to the World Bank.
That could mean several new airports and rapid transit systems in countries that need them.