Why is Remittance Important to the Economy?
What exactly is remittance?
Remittance refers to money transfer that is sent or transferred to another party. Derived from the word remit, these money transfers can be sent via various methods:
Electronic Payment System
More often than not, foreign workers use remittance services to send money online to their families back home.
What’s the Situation Like in Canada? In Canada, the remittance industry is valued at $24.6B from 2019. The Canadian demographic is heavily dependant on immigration and in 2019, has accepted 313,580 (StatsCan) immigrants that year, one of the highest in Canadian history. In Canada, remitters send $2,855 yearly on average from a study in 2017 by StatsCan and the top countries sent money were the Philippines, India, the United States, China and Pakistan from Canadians.
What’s the Situation Like in Singapore? In Singapore, there are close to 550,000 foreign workers who use such money transfer services. Every year, millions of dollars are sent by migrant workers to their home countries. Singapore's economy generated US$8.2 billion in 2018 from money transfers made by the 250,000 migrant workers who call it home. Remittance benefits not just the recipients themselves but their local and national economies as well.
How Does Remittance Affect the Economy?
Provide Stable Inflow of Funds into Home Countries
As workers send their income back home to support their families, remittance transfers are more often than not, consistent. This form of foreign earnings is often seen as funds that are more stable and reliable as compared to Foreign Direct Investments (FDIs) or foreign aid. Remittances are therefore powerful driving forces for creating and maintaining the much-needed foreign exchange in the receiving country. In addition, when these funds are spent, it creates an income for others and will in turn also stimulate economic activities.
Works in Reverse during Economic Downturns
Another important point to note is that remittance itself works counter cyclical to economic distress at their local economies. Unlike the workings of FDIs, economic distress in the home country inspires migrant workers to increase the volume of funds they remit back home. This is simply for altruistic reasons or to protect their own economic interests at home. Thus, remittances can be seen as an ‘invisible helping hand’ for national economies, providing them with a stabilising stream of earnings.
How Do Workers Transfer Money Internationally?