Remittances are defined by the World Bank (2007) as ―the sum of workers‘
remittances, compensation of employees, and migrant transfers‖. The main sources of official data on migrants' remittances are the annual balance of payments records of countries, which are compiled in the Balance of Payments Statistics Yearbook published by the International Monetary Fund (IMF). It is therefore most logical to examine the definition of remittances as provided by the IMF. The IMF Balance of Payments Manual 5 (BMP5) does not define workers or migrants. According to the Balance of Payments Textbook,
―workers‘ remittances consist of goods or financial instruments transferred by migrants living and working in new economies to residents of the economies in which the migrants formerly resided‖. It further states that workers‘
remittances are ―transfers made by migrants who are employed by entities of economies in which the workers are considered residents‖ and that transfers of self-employed migrants ―are not classified as workers‘ remittances but as current transfers‖. This distinction is necessary since ―workers‘ remittances, according to the balance of payments convention, arise from labour and not from entrepreneurial income‖.
Remittances may also be viewed as transfers of money, goods and diverse traits by migrants or migrant groups back to their countries of origin or citizenship. The notion of remittances often conjures only monetary aspect;
however, remittances embrace monetary and non-monetary flows, including social remittances. Social remittances are defined as ideas, practices, mind- sets, world views, values and attitudes, norms of behaviour and social capital
52 (knowledge, experience and expertise) that the diasporas mediate and either consciously or unconsciously transfer from host to home communities (North- South Centre of the Council of Europe, 2006 cited in Oucho, 2008).
There are divergent views regarding the concept of remittances on the part of data users. Reinke and Patterson (2005) pointed out that studies of (Adams and Page, 2003; Harrison, 2003; Migration Policy Institute, 2003) treated remittances as certain transactions that are initiated by individuals living or working outside their country of birth or origin and related to their migration.
In general, data on remittances are available from three items in Balance of Payments (BOP) reports at country level as compiled in the IMF Balance of Payments Statistics Yearbook: a) ―Workers‘ remittances‖ (money sent by workers residing abroad for more than one year);
b) ―Compensations of employees‖ (gross earnings of foreigners residing abroad for less than a year; c) ―Migrant transfer‖ (net worth of migrants moving from one country to another) (Gammeltoft, 2002).
In the balance of payments framework, compensation of employees is a component of income while workers‘ remittances are a component of current transfers; both are part of the current account. Migrants‘ transfers are a component of capital transfers, which is part of the capital account. The definitions of these components, according to the BPM5, are:
Compensation of employees comprises wages, salaries, and other benefits earned by Individuals—in economies other than those in which they are residents—for work performed for and paid for by residents of those economies.
53 Workers‘ remittances cover current transfers by migrants who are employed in new economies and considered residents there. A migrant is a person who comes to an economy and stays there, or is expected to stay, for a year or more.
Workers‘ remittances often involve related persons.
Migrants‘ transfers are contra-entries to the flow of goods and changes in financial items that arise from the migration of individuals from one economy to another.
The concept of residence for households and individuals is based on their center of economic interest. If a resident household member leaves the economic territory where the household is based and returns to the household after a limited period of time (of less than one year), the individual continues to be a resident even if he or she makes frequent journeys outside the economic territory. Individuals leaving their country with the intention of living in a new economy for a year or longer will be considered residents of the new economy (with a few exceptions, notably students, medical patients, diplomats and military personnel). BPM5 does not specify a definition of migrants. Transfers are offset entries in the balance of payments to the provision of a resource (such as grants and gifts in kind or financial form) without a quid pro quo.
Depending on the nature and use of the resource, transfers are recorded as current transfers in the current account or as capital transfers in the capital account component of the capital and financial account (Reinke, 2007).
There are a number of conceptual limitations of remittance definitions in the BMP5 which obviously create certain conceptual difficulties. For example;
there are currently two questions arising from the focus on employment and lack of clarity of migration as emphasized by Reinke and Patterson (2005)
54
• First, with increasing international mobility and the breakdown of traditional employment models, the focus on workers may be difficult to maintain. The basic issue for consideration should the focused perhaps on all migrants, regardless of status of employment and source of income?
• Second, there is no clear guidance on migrants, since the BPM5 distinguishes only residents and nonresidents (visitors). Is a clear definition of migrants needed, as the originating unit of remittances? As a result, should workers‘
remittances be renamed migrants‘ remittances?
These questions are currently being addressed in the context of on-going work on the Balance of Payments Manual and in coordination with other fora, such as the UN Technical Sub-Group on the Movement of Natural Persons—Mode 4.
The lack of an acceptable official definition of remittances and the lack of clarity surrounding statistical compilation of a corresponding data series in the balance of payments has been noted for some time and led to a call by the G-8, during their 2004 meetings on Sea Island, to clarify the meaning of remittances and improve the accuracy of measuring remittance flows. This in turn led to the creation of a working group composed of the World Bank, IMF, and other international financial institutions that was tasked with clarifying the definition of remittances, offering guidance on how to collect and estimate remittance statistics, and providing assistance on how to develop an inflow-outflow matrix for tracking remittance flows.
A technical subgroup of the United Nations reported its findings to the IMF Committee on Balance of Payments Statistics and the Advisory Expert Group on National Accounts. According to Reinke (2007), the results of this process is included in the revision of the BPM5 and the update of System of National
55 Accounts, 1993, both of which are scheduled for completion in 2008. The proposed changes will include the introduction of four new categories related to remittances, conceptual changes to the use of migration and residence status, and the elimination of the use of migrants‘ transfers in the reporting of balance of payments flows. As discussed in Reinke (2007), the changes2 include several items of importance:
(i) ―Personal Transfers‖ to replace ―Workers‘ Remittances‖ Personal transfers will replace the existing workers‘ remittances item in the balance of payments, and will include all current transfers in cash or in kind between resident households and non-resident households. Unlike workers‘ remittances, the new concept is based neither on employment nor migration status and thus resolves inconsistencies associated with the previous concept.
(ii) Creation of a new item, ―Personal Remittances‖ Personal remittances will be defined as current and capital transfers in cash or in kind between resident households and non-resident households, and ―take-home‖ compensation of employees earned by persons working in economies where they are not resident.
(iii) Creation of a new item, ―Total Remittances‖ This will include ―Personal Remittances‖ and social benefits. Intuitively, it includes all household income obtained from working abroad.
(iv) Creation of a new item, ―Total Remittances and Transfers to Nonprofit Institutions serving Households‖. This will include all components of ―Total Remittances‖ as well as both current and capital transfers to nonprofit institutions serving households (NPISHs).
2 This proposed change is yet to be implemented as at April 2010 and so does not affect this study.
56 (v) Removal of the concept of ―migrants‘ transfers‖ from the balance of payments framework. Instead of recording changes of assets and liabilities resulting from individuals moving their residence from one economy to another in the capital account, they will be recorded as ―other changes of assets and liabilities‖. The movement of personal effects that accompany a migrant will be excluded from import and export data.
(vi) Abolition of the concept of ―migrant‖ in the balance of payments framework. Since the concepts of personal transfers and remittances are based on the concept of residence rather than migration status, the concept of migrant is no longer relevant. This is consistent with the use of residence criteria elsewhere in the balance of payments and national accounts frameworks.
(vii) Reporting of remittance flows to and from major partner countries in balance of payments data. This is a lower priority request of data users compared to accurate reporting of aggregate remittance flows, but reporting of bilateral flows will be encouraged.
Personal transfers are expected to be a standard item in the revised balance of payments framework. All new definitions—i.e., personal remittances, total remittances, and total remittances and transfers to nonprofit institutions serving households—are expected to be supplementary items that compiling countries are encouraged but not required to compile. It should be noted that they cut across standard categories (income and transfers) and may entail asymmetries between transacting countries due to sector allocation.
Chami, et al (2008) noted that the proposed changes to the balance of payments and system of national accounts frameworks are welcome developments regarding the true specification of remittances. The new category personal transfers captures periodic, recurring, unrequited current
57 transfers between residents of different countries. Any prior confusion arising from the distinction between transfers out of wage income and those out of other income, or from the concept of migrant status, which led to grey areas between the previous definitions of workers‘ remittances and employee compensation, are eliminated in this proposed version.
The main focus from a balance of payments perspective is to capture and record transfers between persons in different countries, which coincides with the generally accepted definition of remittances. The elimination of the concept of migrants‘ transfers and the inclusion of employee compensation in a supplementary item are also welcome. As evidenced by the data, migrants‘
transfers and employee compensation have characteristics more closely akin to those of private capital flows than to those of personal transfers and as such should be classified as items separate from workers‘ remittances.
As already noted, the new category ―personal transfers‖ captures periodic, recurring, unrequited current transfers between residents of different countries;
this proposed changes constitute a useful guide in this study as data on workers‘ remittances corresponds to personal transfers. This component is therefore isolated from migrants‘ transfer and employee compensation and is employed in this study.