IF THE UNITED STATES raises interest rates, emerging nations skittish about potential capital outflows do have one key weapon in their arsenal: remittances from national diaspora.
The World Bank says money sent home by workers abroad to countries including Mexico, the Philippines and India will probably reach $427 billion this year, almost as large as the $443 billion in estimated net portfolio inflows.
Remittances, which are forecast to increase to $471 billion in 2017, are three times larger than official development loans and more stable than portfolio inflows, according to the World Bank.
“Remittances are relatively stable and acyclical: they are stable even during episodes of extreme financial volatility and they can help promote consumption stability,” said Dilip Ratha, lead economist for migration and remittances at the World Bank’s Development Prospects Group.
“The relative importance of remittances as a source of external financing, therefore, is expected to increase further in the medium term.”
Workers seeking better paying jobs abroad have long powered consumption and boosted foreign exchange in their home countries.
The Indian community abroad sends home more money than any other group overseas -- $70.4 billion in 2014, or double what the nation attracted through foreign direct investment.
“Growth in private capital flows to developing countries might well moderate when interest rates begin rising in advanced economies, or if growth in developing economies remains weak,” Mr. Ratha said. -- Bloomberg
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