News Analysis: Remittance-dependent Economies Feeling Pinch of Global Slowdown

The World Bank's estimates put global remittances to developing countries at 283 billion U.S. dollars in 2008, up 6.7 percent from the previous year.

In countries like the Philippines, Tajikistan, and Mexico, where money sent home by overseas migrant workers play a significant role in propping up national economies, the lifeline of remittances is, however, under threat as it takes its toll of the troubled world economy.

A November report by the World Bank said remittances flowing to developing countries began to slow down in the third quarter of 2008 after several years of strong growth and the downturn is expected to get worse this year.

In 2009, remittances are expected to fall by 0.9 percent, the World Bank said.

Analysts say the reason behind the change is fewer job opportunities for migrant workers who have little or no skills. While employers worldwide are seeking to cut costs in an attempt to better cope with the financial crisis, migrant workers are always among the first to be laid off.

For those who are lucky enough to keep their jobs, they often have to accept lower wages.

Teresa Soriano, assistant secretary of the Philippine labor department, said more than 500,000 overseas Filipino workers are at risk of losing their jobs because of the global meltdown.

Of this figure, 268,000 work in factories in South Korea, and China's Taiwan and Macao; 130,000 work on cruise ships; 129,000 hold temporary work visas in the United States; and the remaining 48,000 work in households in Singapore, and China's Hong Kong and Macao.

Statistics by the Philippine government show that the economic crunch has caused at least 1,423 of its overseas workers to lose jobs as of mid December.

The country's central bank, BSP, said the growth in remittances from overseas Filipinos will drop to 6 percent in 2009, the first single-digit growth since the early 1970s when the government started promoting the export of surplus labor.

Similar stories are also affecting people in South Asian countries like India, Pakistan and Bangladesh.

Anshuman Jaswal, an analyst at Indian research firm Celent, said the number of migrant Indians employed abroad has dropped.

He said remittances would remain depressed throughout 2009 and early 2010, making it difficult to meet annual growth targets for the Indian economy. Remittances make up about 3 percent of India's GDP.

Mustafa K Mujeri, chief economist at the central bank of Bangladesh, said earlier in January that pressure on remittance inflows to the country may rise if the recession deepens and persists for a long period in the Gulf region, which hosts a large proportion of Bangladeshi workers.

The World Bank said remittances from the Gulf region, the lifeblood for millions in South Asia and the developing world, could decline by 9 percent in nominal dollar terms this year, compared with a rise of 38 percent last year.

In Tajikistan, which received over 30 percent of its GDP from remittances last year, government officials worry that an increasing number of home-returning migrant workers may prompt a contraction of the economy.

Pulat Pulatov, a Tajik sociologist, said Russian employers would be laying off a large number of Tajik migrant workers.

"There then will follow a reduction in financial transfers and, as a result, the social condition of the population will worsen," he said.

On the other side of the globe, observers in Mexico are fretting over the gloomy prospect of zero-growth for their national economy partly due to the decline in the money sent home by Mexican migrants in the United States.

"Officially recorded remittances to Mexico declined by 3.7 percent during January-September 2008 compared to the same period the previous year," the World Bank report said.

Since remittances are Mexico's second-largest source of foreign income after oil, any bad news about the U.S. economy has the potential of dragging Mexico deeper into recession, analysts say.