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Mr. Ralph Chami, Connel Fullenkamp, and Mr. Samir Jahjah

The role of remittances in development and economic growth is not well understood. This is partly because the literatures on the causes and effects of remittances remain separate. We develop a framework that links the motivation for remittances with their effect on economic activity. Because remittances take place under asymmetric information and economic uncertainty, there exists a significant moral hazard problem. The implication is that remittances have a negative effect on economic growth. We test this prediction using panel methods on a large sample of countries. The results indicate that remittances do have a negative effect on economic growth, which indicates that the moral hazard problem in remittances is severe.

Mr. Erik Lueth and Marta Ruiz-Arranz

We estimate a vector error correction (VEC) model for Sri Lanka to determine the response of remittance receipts to macroeconomic shocks. This is the first attempt of its kind in the literature. We find that remittance receipts are procyclical and decline when the island's currency weakens, undermining their usefulness as shock absorber. On the other hand, remittances increase in response to oil price shocks, reflecting the fact that most overseas. Sri Lankan are employed in the Gulf states. The procyclicality of remittances calls into question the notion that remittances are largely motivated by altruism.

International Monetary Fund

This paper analyzes several issues regarding fiscal sustainability and fiscal adjustment in Brazil during 1990 and searches for econometric evidence of a monetary dominant regime during some subperiods. The following statistical data are also presented in detail: macroeconomic flows and balances, industrial production, consumer price index, relative public sector prices and tariffs, minimum wage statistics, financial system loans, monetary aggregates, exports by principal commodity groups, direction of trade, detailed balance of payments, total external debt, central government operations, and so on.

Mr. Adolfo Barajas, Mr. Ralph Chami, Connel Fullenkamp, and Anjali Garg

Using data on the distribution of migrants from Africa, GDP growth forecasts for host countries, and after estimating remittance multipliers in recipient countries, this paper estimates the impact of the global economic crisis on African GDP via the remittance channel during 2009-2010. It forecasts remittance declines into African countries of between 3 and 14 percentage points, with migrants to Europe hardest hit while migrants within Africa relatively unaffected by the crisis. The estimated impact on GDP for relatively remittance-dependent countries is 2 percent for 2009, but will likely be short-lived, as host country income is projected to rise in 2010.

Mr. Mohammed El Qorchi, Mr. Samuel Munzele Maimbo, and Mr. John F. Wilson

Abstract

Since the September 11, 2001, terrorist attacks in the United States, there has been renewed public interest in informal funds transfer (IFT) systems. Press coverage, which often focused on the putative connection between the IFT systems and terrorist financing activities, helped to increase the level of official concern about IFT systems’ potential susceptibility to financial abuse. Some national financial regulators began examining existing regulations and, in some cases, designing, developing, and implementing new financial sector policies, including those that address IFT systems.1 Such actions led to a need to better understand the historical context within which IFT systems have evolved, the operational features that make the systems attractive, the fiscal and monetary implications for remitting and recipient countries, and the regulatory and supervisory responses to its current usage.

Mr. Mohammed El Qorchi, Mr. Samuel Munzele Maimbo, and Mr. John F. Wilson

Abstract

This study responds to the growing interest in the operational characteristics and economic and regulatory implications of IFT systems. It contributes to the limited analytical literature on financial remittance mechanisms operating outside the conventional banking sector. It draws on the experience of a select sample of countries known to rely on the informal hawala system and reports on the (1) historical context within which the hawala has evolved; (2) operational features that make the system’s use attractive for both legitimate and illegitimate purposes; (3) fiscal and monetary implications for hawala-remitting and hawala-recipient countries; and (4) regulatory and supervisory responses. Although quantification of hawala remittances is subject to great uncertainty, this study also attempts to show, through a simulation, how this system can be quantified in 15 countries that are likely recipients of informal remittances.

Mr. Mohammed El Qorchi, Mr. Samuel Munzele Maimbo, and Mr. John F. Wilson

Abstract

Different terms are used to describe informal funds transfer systems, including “alternative remittance systems,” “underground banking,” “ethnic banking,” and “informal value transfer system.” This study uses the term “informal funds transfer systems” for four basic reasons. First, in some jurisdictions, these systems are the dominant means by which financial transfers are conducted and therefore cannot be referred to as “alternative remittance systems.” Second, in some communities, informal funds transfer service providers operate openly—with or without government recognition; thus, this system cannot be referred to as “underground.” Third, the use of these mechanisms is often cross-cultural and multiethnic; thus the term “ethnic banking” is overly restrictive. Fourth, IFT better captures the sense and nature of financial transfers akin to conventional banking that are of primary interest to this discussion.

International Monetary Fund. Asia and Pacific Dept
The Philippines’ macroeconomic fundamentals have improved considerably during the past decade. However, new macrofinancial challenges are emerging. The economy is continuing to adjust to the large persistent inflows from abroad. Transmission of domestic policy interest rates has been weakened by low interest rates abroad and ample domestic liquidity. The continued focus on mobilizing fiscal revenue will help support sustained and inclusive growth, while strengthening resilience to shocks. Improvements in the investment climate would make growth more persistent and support domestic job creation.
International Monetary Fund
This Selected Issues paper focuses on recent developments with Kiribati’s Revenue Equalization Reserve Fund (RERF). The paper also examines fiscal aspects of climate change, and considers options for improving fishing license fees, which remain an important source of revenue. It also analyzes recent developments and the outlook for remittances to Kiribati, which is another important source of external revenue and brings important economic benefits, such as reducing poverty and stabilizing national income.
International Monetary Fund
This 2009 Article IV Consultation highlights that following the adverse impact from the global economic and financial crisis, there are signs of a nascent recovery of the Philippine economy. Growth is expected at ¾ percent in 2009 and to recover to about 3¼ percent in 2010. The recovery will likely be led by private consumption as confidence strengthens and remittances pick up further. Investments and exports are also expected to benefit from the global recovery. Risks to the near-term outlook are broadly balanced and sensitive to the global growth outturn.