Understanding the Importance of Remittances

This paper examines the dynamics and importance of remittances. The important points that the paper highlights are:

• Workers' remittances are a major source of external development finance;
• The development community needs to consider how to best manage remittance flows and how to strengthen the body of research on remittances;
• In 36 out of 153 developing countries, remittances are larger than all capital flows - public and private;
• Improving migrant workers' access to banking in the remittance-source countries would not only reduce costs, but also lead to financial development in many receiving countries;
• There is a need to strengthen the formal remittance infrastructure by offering the advantages of low cost, expanded reach and language. This will shift flows from the informal, which is prone to abuse, to the formal sector.

Finally the paper cautions that fiscal incentives like tax incentives and matching grants for remittance backed projects may be used for tax evasion and may divert scarce budgetary resources to projects that non-resident nationals favor.