Global Economic Prospects 2006

1. Global Economic Prospects 2006 Economic Implications of Remittances and MigrationPress launchWashingtonNovember 16, 2005

2. Outlook for the global economy • Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

3. Outlook for the global economy • Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. • Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

4. Outlook for the global economy • Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. • Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. • The possibility of a large and disruptive rise in interest rates also poses a serious risk.

5. Growth in developing countries is still strong Forecast Real GDP annual change % Developing High-income 2007

6. Longer-term prospects: GDP per-capitaReal GDP per capita, annual average percentage change 2000-05 1980-90s 2006-15 0.0

7. Poverty forecastShare of population living on $1/day, millions 2002 2015 1990

8. Further reforms, including Doha, are crucial to future growth prospects % of total possible gains Full liberalization o/w Agriculture Tiered cuts w/ SDT w/ 2% exclusions

9. Outlook for the global economy • Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. • Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

10. Poor oil-importing countries now more vulnerable Terms-of-trade impact (% of GDP) Sub-Saharan Low-income 2000-03 2004-05m7

11. Outlook for the global economy • Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. • Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. • The possibility of a large and disruptive rise in interest rates also poses a serious risk.

12. Low spreads have supported growth, but… Basis points

13. Low spreads have supported growth, but… Basis points

14. Policy priorities • Long-term prospects of developing economies will depend importantly on further reforms, including a successful Doha round. • Policy must promote not impede oil-sector adjustment mechanisms. • Increased public and private savings in the U.S., supportive policy in Europe and continued balance sheet vigilance by emerging markets will reduce global interest rate risks.

15. Development implications of migration and remittances • Migration and remittances continue to increase • Migration generates substantial welfare gains and reduces poverty • The development gains from low-skilled emigration are clear cut, while high-skilled emigration has more complex effects • Benefits to countries of origin are mostly through remittances • There is considerable scope for reducing remittance costs faced by poor migrants

16. International migration has increased Stock of migrants as share of destination countries’ population (%) Source: UN

17. Remittances have continued to increase FDI Private debt and portfolio equity Recorded remittances ODA

18. Top recipients of remittances, 2004 $ billion % of GDP

19. 200 0.4 0.9 -6.0 Migration boosts welfare for most householdsChange in real income in 2025$billion Percentage increase from baseline . Global gains of $356 billion or 0.6 percent

20. Sources of gains for origin countries(Composition of percent change in real income in 2025)

21. Low skilled migration reduces poverty • If a poor person migrates • Through improvements in labor market conditions • Through remittances

22. Impact of high-skilled migration on origin countries is complex • High-skilled emigration also generates remittances and diaspora benefits • However, countries lose: • Skilled workers • Opportunities for training • Improved governance

23. High-skilled emigration rates are high in some countries share of developing country population (%) # of countries

24. Remittances reduce poverty • Evidence from household surveys shows significant poverty reduction effects of remittances • Cross-country evidence shows that a 10% increase in per capita official remittances leads to a 3.5% decline in the share of poor people • Remittances also finance education and health expenditures, and ease credit constraints on small businesses

25. Remittances tend to rise following crisis, natural disaster, or conflictRemittances as % of private consumption

26. Remittances improve countries’ access to capital Present value of external debt as % of exports of goods, services, and remittances

27. Downside • Large remittance flows may lead to currency appreciation and adverse effects on exports • Remittances may create dependency • Remittance channels may be misused for money laundering and financing of terror

28. Remittance fees are high, and regressive Fee and foreign exchange commission as % of principal, U.S.-Mexico corridor

29. Policy priorities • Governments can provide information and regulate intermediaries to reduce risks, costs of migration • A significant opportunity exists to increase low-skill migration through managed programs for temporary migration • Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain • High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry • Governments should not tax remittances or direct the allocation of expenditures financed by remittances

30. Policy priorities • Governments can provide information and regulate intermediaries to reduce risks, costs of migration • A significant opportunity exists to increase low-skill migration through managed programs for temporary migration • Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain • High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry • Governments should not tax remittances or direct the allocation of expenditures financed by remittances

31. Policy priorities • Governments can provide information and regulate intermediaries to reduce risks, costs of migration • A significant opportunity exists to increase low-skill migration through managed programs for temporary migration • Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain • High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry • Governments should not tax remittances or direct the allocation of expenditures financed by remittances

32. Policy priorities • Governments can provide information and regulate intermediaries to reduce risks, costs of migration • A significant opportunity exists to increase low-skill migration through managed programs for temporary migration • Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain • High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry • Governments should not tax remittances or direct the allocation of expenditures financed by remittances

33. Policy priorities • Governments can provide information and regulate intermediaries to reduce risks, costs of migration • A significant opportunity exists to increase low-skill migration through managed programs for temporary migration • Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain • High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry • Governments should not tax remittances or direct the allocation of expenditures financed by remittances