The role of remittances in achieving sustainable development growth

With the World Bank estimating that $689 billion dollars was sent home by expatriates and migrant workers around the globe in 2018, the economic impact of remittance is undoubtedly considerable. For this reason, the United Nations has recognised the role of remittance in economic development, even allocating a special day to celebrate that role - 16th June, or International Day of Family Remittances.

The inclusion of the word “family” is down to the fact that the smaller remittances of just $200-$300 sent from overseas workers to their families back home has the most impact. It matters more to the grassroots level to get a modest but direct injection of cash than for the nation as a whole to receive a massive influx of millions of dollars. In some cases, it can be up to 60 per cent of that family’s household income.

The impact is significantly greater on developing countries. In fact, of the $689 billion remitted in 2018, $528 billion was sent to developing countries. According to the Migration Policy Institute, 30 countries received so much in remittance in 2018 that it amount to over 10 per cent of their gross domestic product (GDP). Sub-Saharan countries were among the biggest beneficiaries, in this regard, with The Gambia and Lesotho among them.

Sustainable Development Goals

Given the well-documented role that remittance plays in supporting families in developing countries, it should come as no surprise that they have been closely connected to the UN’s Sustainable Development Goals(SDGs).

The SDGs are 17 specific targets that the UN set in 2015, with the aim of achieving all of them by 2030. Adopted by all member countries, each relates to removing or reducing inequality and giving every person on the planet a fair shot at life. The 17 goals are:

1.     No poverty

2.     Zero hunger

3.     Good health and well-being

4.     Quality education

5.     Gender equality

6.     Clean water and sanitation

7.     Affordable and clean energy

8.     Decent work and economic growth

9.     Industry, innovation and infrastructure

10.  Reduced inequalities

11.  Sustainable cities and communities

12.  Responsible consumption and production

13.  Climate action

14.  Life below water

15.  Life on land

16.  Peace, justice and strong institutions

17.  Partnership for the goals

Almost all of these goals depend first and foremost on grassroots initiatives, which require money coming in to allow people the luxury of time and reduced stress. It is hard to think about paying for a good education for your children when your mind is focused on how you are going to afford to feed them from one day to the next. This is where remittance comes in.

Impact of remittance on SDGs

Goals 1 to 5 are those where the role of remittance on the Sustainable Development Goals at a household level is most prominent. The added injection of income from overseas clearly reduces poverty, enables families to afford more food to prevent hunger and covers medical bills and pays for the improvement of the household to help maintain health and well-being. As stated in the example given above, the extra money also helps families afford schooling for both boys and girls, giving both the skills needed to seek equal opportunities. Indeed, women already comprise half of those now sending money home - a significant win for gender equality.

The role of remittance on SDGs 6, 7, 12 and 13 are more that the local community level than the household one, making the contribution somewhat less obvious. It helps to create wealthier communities and even allows funds to be pooled to help those in the community most in need. A family or community that is no longer worrying about their immediate survival needs can then start thinking bigger, considering the future of their society in terms of its energy needs and sources, sustainable farming practises, protecting local biodiversity and ongoing economic development.

Remittance can even have an impact on SDGs at the national level, including goals 8 and 10. The money coming in from overseas is known to support various government policies, whether directly or indirectly. The skills learnt by expats and brought home can also have a major impact on the economy, creating new jobs as returning expats open business of their own.

A further bonus of remittances, which is only indirectly associated with the Sustainable Development Goals, is the protection it provides against weather- or disaster-related shock and the sudden income shortages often resulting from these. For example, during extensive flooding in the Indian state of Kerala in August 2018, expatriates from the state sent more money home to their families to support them when their own income was reduced to nil. This added financial safety net can allow households the peace of mind required to consider trying out different, more eco-friendly ways of living and working that they may not have considered before.

Impact of SDGs on expats

Of course, living and working overseas is not the answer to all of the world’s problems, otherwise everyone would be doing it. Indeed, it has its own challenges that are addressed by the Sustainable Development Goals. Specifically, SDG 10 (Reduce inequalities) aims to promote better working conditions for expat workers. This is one example where the SDGs are looking for developed as well as developing countries to institute changes. For example, the dire conditions for migrant workers in Qatar (the world’s richest country) have been well documented.

Unfortunately, one challenge faced by expatriates that cannot be easily addressed is that of fluctuating exchange rates. These fluctuations can mean that the same sum of a migrant worker’s wages sent home can result in their family receiving radically different sums in their native currency - sometimes a lot more than usual, sometimes a lot less. A survey by ECA International, a London-based expatriate management firm, found that each company that has to deal with this issue faces it in their own way and sticks with what works for them, meaning that there is no single guaranteed solution. The firm went on to advise that an international effort may be required to develop an exchange rate protection policy in order to safeguard this essential financial lifeline.

Other development contributions

While helping towards the achievement of the SDGs is no small benefit that comes from remittance, it can contribute to a country’s sustainable development in ways that are not set down as specific goals. We’ve already covered the fact that it can ensure that families still have an income even during times when some form of crisis has reduced or removed local options for making any. However, that is just the tip of the iceberg.

On a far larger scope, money received from remittance can help to keep an entire national currency stable. For an example, we once again return to India in 2018, when the Indian rupee was the world-performing currency in Asia. This was at least partially because of the rising price of oil - a resource that the country cannot locally produce and must import from overseas. While the currency did plummet in value during this time, its recovery was largely thanks to foreign remittances sent back to support families in these trying times.

The influx of foreign currency and exchange from overseas was able to support the domestic currency. It was also able to contribute towards reducing burden that the cost of imports was putting on the national economy. With large reserves of foreign currency, India could buy goods from overseas in their native currencies, without having to worry about the creditworthiness of the country or fluctuations in exchange rates.

Remittances can somewhat counterintuitively, also generate domestic employment. The Philippines, which has a massive diaspora of approximately 2.3 million people living and working overseas, receives a very healthy flow of foreign currency, which has led to increased spending on local goods and services. This, in turn, generates demand that must be met by local industries, increasing local earnings and strengthening the local

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