THE IMPACT OF THE FINANCIAL & ECONOMIC CRISIS ON REMITTANCES, RETURN MIGRATION AND DEVELOPMENT IN GHANA By Peter Quartey (PhD) Centre for Migration Studies & ISSER, University of Ghana
OUTLINE 1. Introduction 2. The Impact of financial and economic crisis on Remittances in Ghana 3. Impact on Development 4. Government Response to the Crisis 5. Conclusion 2
1. Introduction The financial and economic crisis has had serious repercussions on both developing and developed countries but the magnitude varies The IMF estimates that about 30% of low income countries could be considered as highly vulnerable to the consequence of the crisis 3
1. Introduction About 50% of the highly vulnerable are in SSA with Ghana not an exception. Ghana, Zambia are classified as highly vulnerable followed by Benin, Nigeria, Kenya and Uganda The crisis is likely to affect remittances, return migration, and economic development and therefore the need for a comprehensive response from government 4
1. Introduction Likely Effects of the crisis Job Losses (Migrants first to loose jobs) Reduction in wages Risk of Discrimination & Xenophobia Return of unemployed migrants Decline in remittances Restrictive labour policies Reduction in labour migration Increase in irregular migration Effects on microfinance Effects on savings and Investment 5
2. Impact on Remittances The literature analyzing the impact of remittance flows shows that these flows are beneficial at all levels, namely, the individual, household, local community and national level. Migrant remittances to Ghana have increased from about $449 million in 1999 to $1.8 billion and $1.9 billion in 2007 and 2008 respectively, exceeding ODA (Bank of Ghana, 2009). Migrant remittances enhance the growth of the private sector through its impact on financing of small and medium scale enterprises (real estates, and other small artisanal businesses) 6
2. Impact on Remittances 7
2. Impact on Remittances In Ghana, remittances account for a large share of total household incomes and a very important source of foreign currency, there is concern that planned investments and social spending may be postponed or cancelled There is the concern that remittances will decline as a result of the financial and economic crisis 8
2. Impact on Remittances Slowdown of remittances will more likely hurt relatively unskilled migrants and recipient households (Ackah, Bortei-Dorku Aryeetey & Aryeetey, 2009) Although internal remittances are equally important, the focus of attention has been international transfers since they provide foreign exchange, support household consumption, education and the real estate sector in Ghana 9
2. Impact on Remittances The global financial crisis has affected private inward transfers, which declined by 14.2% between the fourth quarter of 2007 and quarter four of 2008 Private inward remittances sent through the banks accounted for 94 percent and 92.91 percent of total private inward remittances in 2007 and 2008 respectively while the rest were sent through non-bank financial institutions (BoG, 2008) 10
2. Impact on Remittances The assessment of the impact of the global financial crisis is assessed by comparing the quarterly remittance figures of 2007 and 2008. Remittances declined between the first and second quarters of 2008 but increased marginally thereafter till the last quarter of 2008. 11
2. Impact on Remittances The volume of remittances for the last quarter of 2008 was less than the first quarter figure Remittances grew by 40.2 percent and 28.25 percent between the first quarter of 2007 and the second quarter of 2008 respectively, and -2.72 and -14.41 between the third and fourth quarters respectively. Quarter-to-Quarter comparison indicate a decline in inflows: Q1= $506,305,906.29; Q2 = $488,616,833.30; Q3 = $494,318,527.90; Q4 = $499,494,568.82 12
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3. Return Migration The crisis has led to the loss of jobs of many migrants. In some cases, a loss of income. This has repercussions on dependents of migrant remittances, migrant savings, migrant investment (at home or abroad) The loss of income and jobs will affect intentions to return and in some extreme cases, migrants return to their countries of origin 14
4. Likely Impact on Development The financial and economic crisis is likely to affect economic development in Ghana. The transmission mechanism is as follow: - The financial and economic crisis has led to loss of jobs/income by migrants and this has affected remittances to Ghana - It has led to reduced demand for Ghana s exports - Aid inflows have also reduced 15
4. Likely Impact on Development All these will lead to reduced foreign exchange receipts. There will be excess demand for foreign exchange and this will lead to a depreciation in the local currency The exchange rate movements (depreciation) will also put pressure on prices (inflationary pressures) Loss of revenue will also lead to budget deficit. The crisis also has growth and poverty implications 16
4. Likely Impact on Development Return Migration as a result of the crisis is likely to lead to economic and social instability in Ghana Due to the continual global price declines and weak demand, due to the global financial and economic crisis Export is being affected. It has led to a declining production of export products and services because of the lack of enabling infrastructures and funding for productive activities (high interest rates) 17
4. Likely Impact on Development The crisis has had effects on Ghana s foreign exchange revenue position. Due to widening international trade deficits, the stock of international reserves (in terms of months of import cover) is less than 1.8 months cover. (The Ghanaian Journal, 2009) 18
4. Likely Impact on Development A higher financing gap in 2009 budget statement is expected to be financed by foreign sources. Given the severity of the slowdown in growth in developed economies, a potential reduction in bilateral aid flows to Ghana is anticipated, since Ghana s development partners are among those countries seriously affected by the credit crisis. 19
5. Government Policy National Migration Bureau Preparation of National Migration Profile & Sectoral policies on migration to assist in developing migration policy IMF and World Bank support to mitigate the effect of the crisis Lean size of government reduce budget deficit from 15% of GDP to 9% of GDP Effective regulation and supervision of financial institutions to prevent bad loans and bank failure Social Protection LEAP, School feeding, capitation grant, CHIPS etc 20
6. Conclusion The impact of the global financial crisis still rages on. While the economies of the advanced countries have been very much hit by the global financial crisis, the developing economies have not been spared. The focus of the presentation is on the extent to which it has impacted on remittances to households, return migration and likely impact on the economy The crisis has affected remittances, foreign exchange, inflation and livelihood of many households 21
6. Conclusion Social Protection programmes such as LEAP, school feeding, pension schemes should be extended to cover all vulnerable households. Reduce Excessive Spending by government Regulation and supervision of banks Proper migration management