Borko Handjiski, Senior Economist

World Bank

Remittance Trends,Diaspora Bonds and Remittance-Backed Securities

Outline

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Remittance trends

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Baltic countries have recorded fastest growth in remittances among EU-10 countries

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Consequently, Baltics have among the highest remittance-to-GDP ratios among EU-10 and in the EU as a whole

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Lithuania’s remittance inflows affected most by the crisis; Latvia’s the least; but in all three remittances more stable than FDI.

Sources: Eurostat, IMF Balance of Payments Database, Central Banks of EE, LV and LT

Remittance flows often mirror migration flows

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Russia and the EU are the main sources of remittances to the Baltics

Some source countries are common (e.g. Russia, USA, UK)

Not exposed to the weakest EU economies

Note: data in table include formal remittance flows only (source: World Bank)

Costs of remitting funds seem to be high – an issue for further exploration

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Source: World Bank

Diaspora bonds and remittance-backed securities

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Why interest in diaspora bonds?

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Remittances are a way of tapping into diaspora income flows on a regular basis, while issuance of foreign currency-denominated bonds to diaspora is a way of tapping into diaspora’s wealth, i.e. savings.

Empirical analysis shows that migrant (diaspora) savings are several times higher than annual remittance flows

What is the rationale for diaspora-targeted financing instruments

Two successful issuances of diaspora bonds: Israel and India

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Israel India

$25 billion issued in total $11 billion issued in total

Annual issuance since 1951 Opportunistic issuance in 1991, 1998 and 2000

Development-oriented borrowings Balance-of-payments support

Large though declining patriotic discount Small patriotic discount, if any

Fixed, floating-rate bonds and notes Fixed-rate bonds

Maturities from 1 to 20 years with bullet repayment Five year with bullet maturity

Distribution by Development Corporation for Israel

Distribution by State Bank of India and international banks

Targeted toward but not limited to diaspora Limited to diaspora

Nonnegotiable Non-negotiable

Source: Ratha and Kethar 2009. World Bank.  

Remittance-backed securities – another instrument to utilize remittance flows

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Main benefits for commercial banks are: (i) increased market access (ii) prolonged debt maturity (iii) lower cost of debt (because of higher investment rating)

“Innovative Financing for Development”, World Bank 2009

Global Knowledge Partnership on Migration and Development (KNOMAD)

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World Bank initiative for an open and multidisciplinary platform to generate and exchange information on migration and development

The KNOMAD initiative is currently in inception phase and will be launched at the IMF/WB Spring Meetings 2013 More information:

http://blogs.worldbank.org/peoplemove/ and www.KNOMAD.org

THANK YOU!

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www.worldbank.org/eca/migrationwww.worldbank.org/migration http://blogs.worldbank.org/peoplemove/ www.worldbank.org/paymentsystems http://www. KNOMAD.org

www.mirpal.org