Contribution of Remittances in Poverty Alleviation and Employment- – Telegraph Nepal

Prof. Sri Dhar Khatri, Nepal

Looking only at geographical distribution of migrants within their own country and household distribution of remittances do not provide the full picture on the poverty reduction with remittances hypotheses.

Sri Lanka’s and Nepal’s experience illustrates that even though large numbers of migrants going abroad are from the richest districts, and not the poorer ones, poverty reduction has taken place.

In the case of Sri Lanka, 27 percent of the migrants were found to be from the Western province, which produces over 50 percent of the GDP of the country. Monaragala district where the poverty indices are the worst has only one percent of migrant workers.

There are only 15 percent of migrants from the entire North and Eastern provinces, while only small percentage of workers have migrated from tsunami affected areas.

In Nepal also the poorest of the poor (20 percent of the population) are not in a position to migrate.

Labour migration has taken place from areas that are relatively richer, because it also requires investment.

However, the utilization pattern of remittances by recipients suggests that it can not only make the lives of the migrant workers less vulnerable, but can also uplift them from poverty.

One study on Sri Lanka suggests that out of the total income, remittance recipient families spend 56 percent on foods and 18 percent on education, which meets the basic needs of the families trying to move out of poverty.

The utilization pattern of savings in real estates (44 percent), to clear indebtedness (13 percent) and education of children supports the poverty reduction hypothesis.

d) Multiplier effects of remittances:

When looking at remittances, one must remember that poverty reduction cannot only be linked to individual household cases, since poverty reduction takes place on the uses of remittances by states and individuals.

Remittances come in foreign exchange and that foreign exchange is used by the states in different ways that lead to poverty reduction.

And individuals use their remittances that create a multiplier effect that may lead to income generation within the society that may lead to poverty alleviation to some corners, but not particularly that family that has migrated.

What individuals get are in local currency and what the state keeps is in foreign exchange.

As such, among other things, poverty reduction scenario takes place through debt servicing, import substitution, etc., that comes through the availability of foreign exchange, provided that it is through official sources, results in accretion in foreign exchange reserve of the country, 2nd the way the use the money for development.

The whole notion that remittances do not result in reducing poverty if they are spent on affluent kind of consumption has been belied by recent development theory, particularly by Prof. Amartya Sen.

He has defined development not in terms of creating goods which will produce goods, but widening of individuals opportunities in life, or in multiplying freedoms that individuals will enjoy.

There is no greater freedom that one can enjoy if one is able to eat today, especially when one was not able to do so yesterday.

Development happens when family is able to spend more on food, since it widens opportunity and prevents deprivation.

If a family is in a position to spend 40 percent on food then it leads to reduction in poverty since it has a direct impact on calories intake.

Similarly, the expenditure in education has instrumental value in laying the foundation for growth.

The belief that remittances are transitory and windfall income are also not accurate.

Remittances are becoming more and more stable than FDIs and ODAs. The global economic structure has changed substantially and the assumption behind the Keynesian theory is wrong.

Globalization is a two way process in which migration and emigration are part and parcel of the same thing.

When one expects others to open their door to your labourers, one must also be willing to open your own door to others.

The notion of a global village with greater interdependence is real, especially where migration is concerned.
Migration has a multiplier affect on the economies of the countries of origin.

In the public sector lot of employment has been generated to better manage migration.

This includes generation of new jobs for promoting government’s awareness campaigns, including pre-departure briefings.

In addition, new ministries have either been created or the existing ones expanded, thus employing more human resources to manage activities linked with migration.

Such expansion can be seen in civil aviation, customs, immigration, and in all other agencies that are linked to managing and governing migration.

In the non-governmental sectors, private recruiting agencies, their agents and sub-agents, travel agencies, banks, medical centres have made money in processing migration, as jobs have been created in NGOs and media in dealing the issue.

e) Impact of remittances is not always automatic:

However, the impact of remittances on poverty reduction and employment, as in the case of economic growth, is neither straight forward nor automatic.

A study by Roger Ballard on the link between remittances and poverty reduction on two areas of divided Kashmir— one in Mirpur on Pakistani side and another in Jullandur Doab on the Indian side—showed different results.

The migrants to the UK from both sides of the border came from similar socio-economic background.

In Jullandur Doab migration led to poverty alleviation and development, whereas in Mirpur it was found that while migration created dynamism in the economy when the remittances were received it could not be sustained once remittances stopped.

The reasons for positive result in the case of Jullandur Doab was due to the macro level policies of the country of origin as well as the infrastructure and development the country has already gone through since the state had already established a poverty alleviation structure to sustain its impact.

Similarly, for remittances to have impact on the economy there must be constant fiscal policy adjustments if the country is to accrue full benefits from the resources coming into the country.

For example, in the case of Nepal the export growth to dollar earning countries in the last six years, excluding to India, was -3.6 percent in the last six years.

During this time Nepal’s foreign exchange reserve increased at 10 percent per annum.

This was not due to increase in tourism, increase in ODA or FDI, but mainly because of remittances.

From the economic point of view, if Nepal doesn’t align the real exchange rates, then the competitiveness of the economy will erode.

Currently, Nepal’s gross national savings that comes largely from remittances is 28 percent, which is higher than gross national investment.

As the country has a surplus economy in principle this means that there are enough resources in the country to develop the economy at 6 percent per annum without the use of FDI and ODA.

All these factors indicate that there is a need to do more analysis on how to channelize the surplus in the investment of the country. 25 Productive investments from remittances has to make a difference at the household level.

Macro level framework does not usually have provisions such specific analysis. The macro economic framework that currently exists is out of date.

Migration management will be difficult when there are deficiencies in policy and institutional infrastructure to maximize benefits from remittances.

Remittance is one of the faultier fields of development economics. Associated with it are sociological, political, cultural and other factors.

It needs long-term planning to get most out of it, where the countries need to give it a priority in their policies. Moreover, it has also to be kept in mind that foreign employment is one of the areas for poverty alleviation.

It is only a stop-gap measure, and a means to an end.

The inflow of remittances does not absolve governments from their responsibility for job creation and the provision of welfare nets for those truly in need.

It is not the panacea for poverty alleviation.

#Thanks the distinguished author Prof. Khatri and South Asia Center for Policy Studies (SACEPS) publication, 2009: Ed. Upadhyaya.

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