Remittances well exceed aid as the most important external finance source for poor countries: let’s make the most of them

Next month, the GEM Report will release the breakdown of global aid figures for education in its annual policy paper. But the signs do not look good. ‘Poorest countries bear the brunt as aid levels fall for second successive year’ and ‘New aid figures reveal ‘incredible lack of ambition‘ are some of the headlines reacting to the release of the total aid levels last week.

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On the back of this news, the World Bank analysed the figures from a remittances perspective, showing that migrants from Africa are the top contributor of foreign inflows to the continent, reaching a record $46 billion in 2018, far more than the $27 billion dollars that were received in foreign aid in the same year.

The 2019 GEM Report looked at the extent to which these finance flows benefit education. Using 2017 remittance figures, our calculations showed that remittances increased education spending by over 35% in 18 countries in Africa and Asia and by over 50% in Latin America.

FSDR2019 infoGiven this potential, the Report joins the call for the transaction costs for wiring funds home to be reduced to the UN target of 3% from the current average of 7%. We estimated that this alone would increase household spending on education around the world by US$1 billion per year.

Remember that one out of every five dollars globally spent on education comes from households, not governments. And that the share is higher in poorer countries. For these families, every dollar they receive from migrating family members counts.

Households in rural India receiving remittances spent 17% more on education compared with those that did not receive any. In Morocco, remittances amounted to 17% of both rural and urban household education spending. Families of Filipino workers in the Republic of Korea tripled their health and education spending.

Remittances have also been shown to improve education outcomes. In the Dominican Republic, remittances increased the likelihood of attendance among those aged 6 to 17. In the Philippines, a 10% increase in international remittances reduced unpaid child labour by more than three hours per week. In Morocco, children in households that received remittances were 11 percentage points more likely to be attending school than in those that did not.

A cautionary finding from our analysis, however, is that the effects of remittances on education outcomes can differ by gender. In Jordan, remittances had a positive impact on post-compulsory education attendance only among young males. In Nepal, remittances’ effect on retention was three times greater for boys than for girls aged 5 to 10. Conversely, while a US$11 increase in monthly remittance led to a one percentage point increase in the enrolment rate of students aged 10 to 17 in Ecuador, the effect was significant only for girls. Mexican fathers’ migration to the United States was associated with an increase of around 0.7 years in educational attainment for girls but not for boys.

How can the potential found in remittances be used better for education? One key area of need, for education and other sectors alike, is for better financial education for migrants. Our analysis found that only one-quarter to one-third of adults are financially literate in the top remittance-receiving countries. There is scope, therefore, in both sending and receiving countries to coordinate financial education for migrants. Successful initiatives involve migrants in their development, actively bring relevant information to households, provide such information at the time financial decisions are made, pay special attention to women and other disadvantaged groups, are integrated with financial and migration service provision, and are well-coordinated.

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1 Response to Remittances well exceed aid as the most important external finance source for poor countries: let’s make the most of them

  1. Pingback: Remittances well exceed aid as the most important external finance source for poor countries: let’s make the most of them — World Education Blog – MICHAEL OWUSU

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