International Workshop on the Economic and Social Impact

of Migration, Remittances, and Diaspora

Remittances, income inequality and poverty in Armenia

ECONOMIC DEVELOPMENT AND RESEARCH CENTER (EDRC)

Gagik Torosyan

Yerevan, ArmeniaJune 24-25, 2010

Channels of Crisis Penetration and External ImpactsChannels of Crisis Penetration and External Impacts• Reduction of remittances from the Armenian Diaspora

• Decrease in migration and revenues from it

• Decline in revenues from export as a result of reduction in global demand

• and price of copper

• Reduced demand for Armenian exported production in CIS and European countries

• Reduction of external demand and investments in real estate market

• Reduction of FDI in other sectors

• Decline in tourism growth

• Penetration of Pessimistic expectations and distrust

• Changed trading conditions, regulation and economic relations

Economic Impact MonitoringEconomic Impact MonitoringDomestic Demand

Spheres of impact Factors Monitoring Indicators

1. Population Incomes

2. Population Expectations

3. Change in the Consumption structure of population

4. Demand of domestic enterprises

5. Public expenditures

• Reduction of money transfers

• Reduction of employment

• Reduction of real wage level

• Import substitution

• Increase in savings

• Reduction of interim consumption

• Tax Reduction

• GDP Growth• Banking transfers• Consumption of energy• Spending on

communication and utilities

• Import of consumer goods• Change in consumer prices• Personal bank deposits• Cargo transportations• Indicators of car import• Quantity and average

prices of real estate transactions

Economic Impact MonitoringEconomic Impact MonitoringExternal Demand

Spheres of impact Factors Monitoring Indicators

1. Export of mining

2. products

3. Export of manufacture

4. Tourism

• Landslide of prices in international markets

• Recession of overall demand abroad

• Toughening of trade policy

•Copper, molybdenum, gold and oil prices

• Export volumes

• Economic growth in partner countries

• Information regarding revision of legal acts

• Passenger inflow indicator

Main Social Risks are Connected withMain Social Risks are Connected with

• loosing of workplaces in Armenia and abroad

• reduction of household income

• changes of public programs, expenditures of population and preferences, that can result in

Growth of poverty

Problems in social and economic integration of migrants,

Problems with quantitative and qualitative availability of education and healthcare services

• The majority of remittance-receiving HHs use remittances for basic expenses.

• HHs in all quintiles show a prominent trend of using remittances for debt repayment.

• Remittances are used for business investment only in Quintile 5. • However, investments in business are lower among remittance-

receiving HHs, especially in Quintile 5. • Expenditures on education and health care services constitute a larger

share in total for remittance-receiving HHs, than in non-receiving ones.• Propensities to save differ considerably between remittance-receiving

and non-receiving HHs. More of remittance-receiving HHs tend to save.

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Impact of Remittances on HH behavior (1)Impact of Remittances on HH behavior (1)

• Remittance-receiving HHs spend savings on purchases of real estate, cars, tourism and leisure,

whereas non-receiving HHs – on emergency and special events, as well as for investments in businesses and education.

• For emergency cases, remittance-receiving HHs tend to rely on HHM or friend/relative migrants, whereas non-receiving HHs – on relatives in Armenia.

• If there were no remittances, it is estimated that extreme poverty among remittance-receiving HHs would increase 6.9 times (15 times in Yerevan).

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Impact of Remittances on HH behavior (2)Impact of Remittances on HH behavior (2)

Poverty Indicators in Armenia in 2004-2008Poverty Indicators in Armenia in 2004-2008

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Analysis of the Poverty Level TransformationsAnalysis of the Poverty Level Transformations

Number of Remittance Related Issues were RevealedNumber of Remittance Related Issues were Revealed

• Sustainability of remittance's affection on poverty reduction and human development is under threat, as remittance receivers’ tendency to invest is not used inefficiently

• There are no investment projects targeted at migrants’ needs

• Remittances are nearly 2.5 times exceed direct investments, which in long-run will bring to serious problems

• Remittance flows are out of control and are unexpected

Remittances/GDP ratio in Armenia in 2003-2009Remittances/GDP ratio in Armenia in 2003-2009

• The major directions of policies that relate to remittances:

– National and economic safety issues,

– Development of financial intermediation and access to services,

– Community development and importing experience, culture and technologies for small business development.

• When developing policies, it is necessary to take into account that the policies need to be prudent and balanced. They may excessively encourage migration and trigger serious demographic problems for the country in a very short period of time.

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Policy Recommendations (1)Policy Recommendations (1)

• Perform Regular Monitoring, Evaluation and Forecast of Remittances’ Trends (at least once in three years).

• Perform regular Assessment of Qualitative and Quantitative Trends of Labor Migration (at least once in three years).

• Broadcast TV and radio programs targeted at increasing awareness and literacy of population on the financial services and products.

• Develop and introduce “new and efficient” financial instruments.

• Develop institutions for linking assistance to Development Financing (creation of community based Social and Economic Development and Cooperation Funds and/or Companies)

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Policy Recommendations (2)Policy Recommendations (2)