VIII. Labor Migration and Remittances1
1. Migrant workers’ remittances are a key aspect of regional integration and have played a significant role in supporting economic activity in Tajikistan. According to recent surveys, almost every Tajik family has sent at least one of its members to work abroad. Recent studies of household incomes and expenditure indicate that remittances from labor migrants are an important means for survival of families left in Tajikistan. This trend is likely to continue, and the authorities have taken steps toward regularizing labor migration issues with Tajikistan’s neighbors. In October 2004, the authorities signed an agreement on labor migration with the Russian Federation and are seeking to regularize migration rules by simplifying document requirements with other Euro-Asian Economic Community (EAEC) members.
A. Employment Abroad and Remittances
2. The role of labor migration and remittances in Tajikistan’s development in recent years has been substantial. Reliable data on migration and remittances are not available and the estimates inevitably vary within wide margins. Depending on underlying assumptions, estimates of remittance inflows in 2004 range from $433 million (used in the balance of payments) to about $1 billion a year, or from 21 to 50 percent of GDP, respectively (see Annex for the underlying calculations).2 Annual labor migration increased steadily in the 1990s and peaked in 1999. With economic stabilization in recent years, labor migration has moderated, although annual levels remain high. The balance of payments statistics cover only remittances made through the banking system. These remittances increased almost tenfold in 2001–2004, as confidence in the banking system improved following reforms at end-2002 that eliminated the 30 percent tax on international transfers of foreign exchange and allowed transfers through Tajik banks without opening a current account.
|Remittances at a Glance|
|Frequency of remittances|
|less than $100||17|
|Source of remittance|
|small agro exports||12|
3. Russia is the main destination of labor migration and the largest source of remittances. According to the 2003 International Organization of Migration (IOM) study, about 90 percent of the Tajik labor migrants stay (legally and illegally) in Russia, and 5 percent in Uzbekistan. Accordingly, money transfers from Russia represent 92 percent of remittances. Half of migrant workers from Tajikistan are employed in housing and industrial construction, a third are involved in trade and services, and the remainder works in gas and oil development, manufacturing, catering, and agriculture. About 60 percent of Tajik migrants have no professional qualifications or skills; those with qualifications include teachers, doctors, engineers, technicians, traders, and farm workers.
B. Macroeconomic Impact of Remittances
4. Labor migration and remittances have had a significant positive macroeconomic impact.
- Remittances provided a precious breathing space for the authorities to recover from the civil disruption of the 1990s. They helped most of the population to offset the income shortfalls caused by the civil war and economic dislocations during the transition, and to ease the overall social strain and pressures on the government.
- Remittances have fueled consumption and growth. A rough approximation suggests that Tajikistan’s gross national disposable income (GNDI) per capita, at $342 in 2004, was at least 15 percent higher and growing faster than the GDP per capita. Remittances of under $1,000 a year are spent on consumption, mainly food, clothing, and medical care. Remittances of $1,000-$5,000 are used to buy durable goods, finance major family events, such as weddings, invest in home repair and improvement, and finance small-scale import transactions. Remittances exceeding $5,000 are mainly invested in rural house construction, while those exceeding $10,000 are invested in remodeling city apartments and larger-scale imports.
- Remittances have financed the growing trade deficit and kept the current account deficit manageable. Remittances covered up to 80 percent of the trade deficit, which reached 19 percent of GDP in 2004, driven by high import demand.
- Remittances have helped to strengthen the banking system and enhance competition. With simplified regulations on bank transfers, recipients of remittances do not need to have a current account with the bank to receive remittances, and the banks have to compete with each other and other financial intermediaries (i.e., Western Union) for the clientele. The NBT surveys of remittances revealed that 96 percent of the respondents were satisfied with bank services. However, 82 percent of the respondents were not ready to deposit the remitted funds in the banks, and 62 percent explained this by the need to use money immediately to finance current household and business transactions.
5. The inflow of remittances presents a significant challenge for macroeconomic management. In a small economy with a shallow foreign exchange market and lack of instruments for the conduct of monetary policy, the sheer magnitude of foreign currency inflows and their pronounced seasonal pattern creates significant problems. The inflows can prompt an appreciation of the national currency, complicate monetary management, and rekindle inflationary pressures. In addition, the continuous exodus of qualified labor and young people from Tajikistan deprives the country of future manpower. Remittances-financed investment has so far been largely concentrated in the residential construction and refurbishing rather than commercial investment. Finally, remittances have been volatile and sensitive to the political climate, both in Tajikistan and the host countries.
6. Labor migration and remittances will continue to play an important role in Tajikistan and the authorities need to implement policies to put these resources to their best use. In particular, improving the business environment would stimulate the use of remittances for productive investment. Especially important for this is the strengthening of the financial sector to intermediate savings from remittances to business investment. The importance of labor migration and remittances for the Tajik economy also requires continued efforts to regularize regional relations in this area. The 2004 agreement with Russia on labor migration is a welcome development.
Bouhga-HagbeJacques A.Theory of Workers’ Remittances with an Application to Morocco IMF Working Paper No. 04/194;October12004.
ChamiRalph; FullenkampConnel; JahjahSamirAre Immigrant Remittance Flows a Source of Capital for Development IMF Working Paper No. 03/189; September12003.
1. The amount of remittances shown in the balance of payments may not accurately reflect actual inflows. The official statistics, which capture only transfers through the banking system, put the inflow of remittances at $433 million (21 percent of GDP) in 2004. Rough calculations suggest that the actual remittances may be substantially higher. The authorities estimate the share of migrant workers at about 17 percent of the economically active population, or 300–400 thousand. Under the broader definition, the IOM (2003) report indicated that some 1.2 million Tajik citizens were working abroad in 2001. With an average migrant bringing annually at least $1,300 from their income abroad to Tajikistan, annual inflows of remittances are likely to exceed $1 billion (50 percent of GDP).
2. The inflows recorded as remittances through the banking system represent a mixture of remittances and export proceeds. According to NBT estimates, such trade–related payments may represent up to 40 percent of total remittances, which points to a substantial overestimation of actual workers’ remittances in the balance of payments. Based on a survey of banks and their clients, the NBT established the following statistical treatment of bank transfers endorsed by a Fund technical assistance mission: all single transfers of more that $1,000 plus 50 percent of transfers between $1,000 and $3,000 will be considered workers’ remittances; all single transfers of more than $3,000 and 50 percent of transfers between $1,000 and $3,000 will be reclassified as exports. The BOP data are being revised accordingly back to 2003. Further analysis of the flows through banks is needed to estimate a threshold under which current transfers are classified as workers’ remittances, with the remainder to be classified as other transfers or export proceeds.
|Remittance to Tajikistan||1,345|
3. The actual inflow of remittances may be substantially higher as amounts brought into Tajikistan outside of the banking system are largely unknown. At least two informal channels are used to remit migrant earnings to Tajikistan:
- Transportation of cash. Because of threat of extortion and physical abuse at checkpoints on the way to Tajikistan, cash deliveries are done mainly by air. With some 23 weekly flights to Dushanbe from Russia by Tajik Air and some local airlines, the air transport is capable to deliver to Tajikistan 200,000 people a year. If half of this number brings an average $1,000, at least $100 million (5 percent of GDP) should be added to remittances.
- Money ’throwing.’ For relatively large amounts usually in excess for $3,000, an illegal money transfer network known as “perekidka” (from Russian “пepeкидкa”—throwing, juggling, a cardsharper’s trick) is used, mainly by shuttle traders and moonlight workers. As these groups of migrants cannot document the legal nature of their income to the remitting bank in Russia, they have to use the throwing system.
4. All remittances through the banking system are shown as current transfers in the balance of payments statistics, although part of them can be treated either as trade-related payments or income. According to the International Organization for Migration (IOM) 2003 study, there are three main types of labor migrants:
- Migrants on official or informal contracts with the recipient enterprises (20 percent of all migrants). As such industrial and trade enterprises operate year round, the Tajik migrants usually stay for more than a year abroad and transfer a substantial part of their salaries to relatives in Tajikistan. Their transfers of salaries through the banking system are correctly shown as workers’ remittances.
- Crews for moonlight construction and agricultural workers (50 percent). They usually work abroad in March-November, during the most active construction and agricultural season in Russia, and return for winter in Tajikistan, remitting their incomes irregularly and bringing most of them in cash. All their wages and other emoluments should be classified in the income account as compensation of employees, with their expenditure abroad classified in the travel account. Currently, all their remittances are shown in the urrent transfers account as no reliable data on the length of actual stay abroad are available.
- Shuttle traders (30 percent). Finally, the shuttle traders, the majority of them the best educated part of the Tajik migrants, remain abroad for a short period of time and function either individually or through established networks that operate continuously. Their remittances through the banking system represent a mix of family support, which should be shown as income, and export receipts, which should be included in exports.
The item in the current transfers account on workers’ remittances may also capture some bank transfers by Tajiks living abroad permanently to their relatives in Tajikistan. Such transfers should be classified as other current transfers, not as workers’ remittances.
5. In addition to the inflow of remittances, Tajikistan’s balance of payments registers a substantial outflow of remittances. These outflows are estimated at $120 million (6 percent of GDP) in 2004 and include transfers by workers from neighboring Afghanistan and Iran, misclassified payments for small imports, and—most likely—drug-related outflows. On a net basis, remittances through the banking system included in the balance of payments are estimated at $313 million (15 percent of GDP).