Should remittances count as foreign aid?

This is no small matter. The US, for example, has consistently (until recently) given the least (per GNI) amongst the OECD:

ODA chart

They recently moved off the bottom (while pipping Japan as the no. 1 in dollar terms). More generally, the fabled promise in the 1970s to double aid as a percentage of GNI has gone walkabout for everyone – it has about halved, as I understand it. The shortfall on this promise is some USD3.1tr, now (with USD2.6tr having been spent – 2005 dollars). Denmark, Norway, Sweden, Luxembourg and the Netherlands the generous exceptions to that rule.

Using the US as an examplar, again, the concept of Foreign Aid is also repeateadly muddied by Military Aid (accounting practices that called military assistance ‘foreign aid’ to make the money numbers look better after the Asian tsunami, an excellent example in international relations) and Food Aid (previously seen here, last Summer).

Across the world, aid aid is declining in proportion to our wealth – illustrated well, I think, by the Davos World Economic Forum consisting almost entirely, this year, of financial murmuring and jumping at the shadows of Sovereign Wealth Funds.

This is context and motive. If we send the army to help dig out a village, is that budgeting expense not Foreign Aid? If we give migrants jobs, and then those migrants send USD300bn of the money they earn back home (and with remittances growing substantially faster than Foreign Aid or Foreign Direct Investment), is that not Foreign Aid?

No way, says Ambassador Munir Akram of Pakistan, until recently chairman of the 130-member Group of 77 developing nations.

“We have to be very careful not to allow these remittances to be portrayed by the North as contributions on their part to development. They are trying to do this,” he told IPS.

Akram said Pakistan receives about 4.5 billion dollars annually as remittances from workers worldwide.

As a general rule, he pointed out, those who are poorest among the migrants send the most money to their families back home.

“These are our people, our workers. We invested in them, they studied in our countries, they got their education, and they are sending a small proportion of their earnings back home,” he said.

Akram said there is a move by Western donors to treat expatriate earnings as part of development assistance to developing nations.

He said these unnamed donors want to count remittances from North to South, but at the same time, they don’t want count repatriation of profits — from South to North.

“They will try and project expatriate remittances as an element of the contribution from the North to the South as a reason for not meeting other aid targets. We need to expose them,” said Akram, the permanent representative of Pakistan to the United Nations.

The answer is “no”, any more than my purchase of Oxfam coffee should be counted as Foreign Aid, for a couple of reasons. First, as above, it’s a scam. We can’t let our international aid accounting consist of shenanigans – that’s what we call a slippery slope (yes, before we know it, Rick Santorum will be given dogs to countries for their people to marry. Or something).

The second is more straight-forward for me, probably less straight-forward for some. Migrant workers are no different from any other worker (besides getting a rawer deal in just about every dimension, of course). They are hired according to the market supply of their labour, and paid according to demand for what they help produce, and the Marginal Revenue Product of Labour in what they produce. Less so, actually (refer to the part about them getting the raw deal).

There is no factor in the labour market for migrants that includes remittances. They do not demand higher wages because of the higher costs they incur as remitting migrants (trademark, I think, for that one), and firms most certainly do not factor in that need when they make a wage-offer. There is nothing deliberate about financing remittancing, from the perspective of the domestic OECD labour market.

The domestic economy involved loses income from remittances, yes – but (a) it allows, freely, the markets that service remittances to form, and make a profit, which means everything is working smoothly (in fact a lot of remittances are still made through unofficial channels, meaning the domestic economy is inefficiently benefitting from the practice, and should improve market-based services for remittances), and (b) the destruction of domestic income/money supply due to remittances pales in comparison to things like military expenditure.

If anything, remittances should be considered a better investment than expenditure by migrants: bullets are destroyed, yet their manufacture means a job. Given their income, a migrant’s spending of that money would be on consumption, which is the slow contributor to economic growth. Well, by sending money home, migrants are boosting the GDP in, and living standards of, underdeveloped countries, strengthening them as markets for exports – and future sources of skilled labour – for the OECD.

Making remittances not aid.

As the IPS article also details, the emigration of skilled labour – particularly health professionals – is a serious and growing public health and human capital development issue for under-developed nations.

So, a compromise. The OECD should start adding remittances by skilled migrants to our Foreign Aid, but we should subtract the balance of their wage or salary from Foreign Aid, since our having them means their own country is left behind. Seems only fair.


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