This document discusses foreign remittance and its role in economic development. It notes that remittances to Sri Lanka exceed foreign direct investment by 2-3 times and account for 7% of GDP. While remittances have helped reduce poverty and supported consumption, their development impact remains ambiguous as most funds are spent on consumption rather than investment. The document advocates policies to encourage productive migration, formalize remittance channels, and mobilize remittances towards investments in small businesses and infrastructure through instruments like Sri Lanka's Nation Building Bonds. With effective policies, remittances could significantly contribute to Sri Lanka's development across different dimensions.

1. Foreign Remittance and
Economic Development
Presented by
Hemesiri Kotagama
Mobilizing the Diaspora for
National Development
Hemesiri Kotagama

2. Meaning of Development
 Maximize social welfare/ satisfaction
 1950: Material development
 1960: Equitable development
 1970: Qualitative development
 1980: Righteous development
 1990: Sustainable development
 2000: Participatory development
Hemesiri Kotagama

3. Hemesiri Kotagama

4. Strategies of Development
 Colonialism
 Nationalistic self reliance
 International dependence (Neo-Colonialism)
– Loans (WB, IMF, ADB … )
– Grants/aid
– Foreign private investments (FDI)
– Foreign remittance (Diaspora based Development:DBD)
 3% of the world population live outside of motherland.
 Sri Lankans in middle east and Malaysia (2000) was 1.5
Million to 0.8 Million
– i.e. 5% to 8% of the population.
Hemesiri Kotagama

5. Sri Lankans in Oman
Hemesiri Kotagama

6. Magnitude of remittances: 1
Hemesiri Kotagama

7. Magnitude of remittances: 2
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8. Remittance vs. FDI:
Self Reliant Development: 1
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9. Remittance vs. FDI:
Self Reliant Development: Facts
 Remittance in Sri Lanka
– exceeds FDIs by 2-3 times. It is stable and earnt by us.
– 2 to 3 times of net foreign assistance.
– 25% of export earnings. Second largest next to garments, ahead
of tourism, tea.
– 2 times the earnings of tourism
– 3 times the investment made through BOI
– Same as the proceeds of privatization income 1989 to 1999)
– 7% of GDP.
– 10% of households receive and dependant.
– 21% of household income of recipients.
– 45% of the recipients are from the poorest 40% of people.
– approximately Rs. 600 per month per capita.
Hemesiri Kotagama

10. Who Remits: Rich or the Poor?
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11. Backbone of Sri Lanka’s Economy:
Shame to Fame
 The government of Sri Lanka has stated:
“Overseas remittance have now become the
backbone of the country’s economy.“
Asian Migration News, 31 August 2001
Hemesiri Kotagama

12. Development Impact of Remittance:
Still Ambiguous
 Development impacts depends on:
– What proportion of remittance is spent on consumption
vs. investments.
– What kinds of investments are made.
 Empirical Study (World Bank, 2005)
– World over remittances (official) reduce poverty
– However in South Asia remittance (official) have NOT
had an impact on poverty reduction.
– In south Asia (official + unofficial) remittance has an
impact on poverty reduction.
– A 10% increase in remittance will reduce the poverty level
by 0.9%.
Hemesiri Kotagama

13. Development Impact of Remittance:
Still Ambiguous
Hemesiri Kotagama

14. Policy Determinants of
Effectiveness of DBD
 Encouraging productive migration (unskilled to skilled, loans,
insurance … )
 Enhancing effectiveness of remittance channeling (financial
institutions; informal (50%) to formal sources)
 Mobilizing for Productive investments (consumption to
investments … small enterprises, education, large
infrastructure)
– Very little effort taken (Athukorala, n.d).
 Reintegrating the diaspora to national development.
 Social safety to the left at home.
Hemesiri Kotagama

15. Enhancing Effectiveness of
Remittance Channeling: Stick and Carrot
 Stick approach has failed
– South Korea enforced a law that 80% of
earnings should be remitted. ( Similar efforts by
Philippines, Pakistan, Thailand, Bangladesh).
– In 2002 Sri Lanka announced to impose 15% tax
on the US $ 1.2 billion remittance received each
year. Was quickly withdrawn.
Migration News, January 2003.
Hemesiri Kotagama

16. Enhancing Effectiveness of
Remittance Channeling: Stick and Carrot
 Carrot approach continues
– Tax free purchases on return. Does not encourage
investments. Siphons out foreign exchange.
– Repatriable foreign currency accounts (NRFC). Ineffective
as interest rates and other fringe benefits are not
competitive.
– Foreign currency denominated bonds
 “Resurgent Indian Bonds: 1998” IR 7.75% US $ +
concessions to buy prime land. Used to fund infrastructure
projects.
 Sri Lanka Nation Building Bonds: 2006, IR 4.45% US$ +
concessions to buy a car. Used to fund infrastructure
projects (airport, highways).
Hemesiri Kotagama

17. Mobilizing Remittance to Productive
Investments: International
Experience
 Bulk of remittances spent on consumption and household
commodities.
 Pakistan on buying land.
 Upgrading housing. Has a multiplier effect of 3 (Mexico).
 Substantial amounts are spent on education of children.
 Each migrant worker creates 3 local jobs (Bangladesh).
 Eases local unemployment.
 Investments on Public infrastructure ?
– Sri Lankan Nation Building Bond is a hope for the future.
Hemesiri Kotagama

18. Summary
 A nexus is developing between national development and
foreign remittance.
 A paradigm shift: Shame to Fame on foreign employment.
 Impact of remittance on development depends on effective
mobilization and judicious investment.
 Sri Lankan Nation Building Bonds being directed to
mobilizing foreign remittance towards infrastructure
investment is indeed an judicious development strategy.
 We wish it success in developing our nation, materially,
equitably, qualitatively, righteously, in a sustainable and
participatory manner.
Hemesiri Kotagama

19. Acknowledgement of sources of
information
 Central Bank of Sri Lanka, Website.
 www.cenwor.lk
 International Organization for Migration (2003)
Migration and Development: A Perspective from
Asia.
 World Bank (2005) Sri Lanka’s Migrant Labor
Remittances: Enhancing the Quality and Outreach
of Rural Remittance Infrastructure.
 World Bank (2005) Migrant Labor Remittances in
the South Asia Region.
Hemesiri Kotagama

20. Thank you very much …
 His Excellency the Sri Lankan Ambassador
for inviting me to speak on this nationally
important issue.
 The audience for sharing knowledge.
Hemesiri Kotagama

21. Pleasure of love is in sharing
Value of knowledge is inHemesiri Kotagama