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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