Workers remittances in the Spanish Balance of Payments

In recent years international flows of workers’ remittances have been receiving growing attention, in step with their constant increase, as a stable source of financing in certain developing countries, and with their notable economic and social impact. This attention has naturally spread to the statistics that measure this type of transaction. In this respect the Balance of Payments, which records real and financial transactions between an economy’s residents (whether immigrants or not) and non-residents, is a fundamental point of reference for quantifying remittances. Nonetheless, the information on workers’ remittances in the Balance of Payments is not free from limitations. Broadly, these limitations come to light first, on comparing the figures under the heading Workers’ remittances in the Balance of Payments of the different countries with their main economic, financial and cultural determinants and with that of other available indicators; and further, on comparing the data of the main remittance issuing and recipient countries. The awareness of these limitations and the growing demand for figures on workers’ remittances have prompted the competent international agencies to initiate a process of revision of the conceptual framework and of the methods used to obtain the Workers’ remittances heading. The case of the Spanish Balance of Payments is no exception here. Comparisons with other indicators of the figures from the heading Workers’ remittances, which the Balance of Payments had been including, highlighted a potential underestimation of debits and an overestimation of credits in this heading. These results reflect the problems of properly estimating workers’ remittances using reporting systems based essentially on the fi ling of foreign proceeds and payments made through credit institutions and foreign accounts (the so called International Transactions Reporting System-ITRS). This is the procedure that the Spanish Balance of Payments has been using and it is, probably, the most common one used internationally. But it faces serious problems derived from the presence of exemption thresholds, which are high for the reporting of individual transactions, and from the sending via socalled remittance companies, or unofficial channels, of a significant proportion of the funds relating to remittances. The use of these procedures makes it difficult to capture this information and allocate it correctly, both in the related Balance of Payments heading and, geographically, according to the destination or source of the remittances. Likewise, in Spain’s case, the importance of revising calculation procedures, especially those affecting debits under this heading, was clearly apparent in view of the notable dynamism of the immigrant population in recent years and their impact on the sending of remittances. Specifically, in the period 2001-2004, the number of immigrants in Spain grew at an annual average rate of 35.3%, according to municipal census figures. This article sets out the work undertaken to evaluate the quality of the debits figures under the Spanish Balance of Payments Workers’ remittances heading and to improve the estimate thereof. First, an estimate is made of the maximum flow of remittances abroad (potential remittances). Second, following the analysis of the procedures used by different countries, an alternative calculation method is described for these remittances based on a panel data econometric model which, in addition to the information from the ITRS, uses that available on the characteristics of the immigrant population and on the economies from which they have come. This new method has helped reduce the uncertainty intrinsic to estimates to date and, along with the analysis and use of other alternative information sources (information on funds channelled through Money Transfer Operators and remittance credits of the main counterpart countries), has enabled the underestimation of remittance payments from Spain in the period 2001-2004 to be corrected. In April 2006, coinciding with the revision of the figures for 2005, the data under this heading in this period were revised, entailing an increase in debits of around 20%. The article is structured as follows. Section 2 analyses developments in the Workers’ remittances heading in the Spanish Balance of Payments. Section 3 compares this heading with other indicators, in order to detect potential biases. Section 4 makes an estimate of the maximum flow of remittances sent abroad drawing on the characteristics of the immigrant population in Spain. Section 5 details an alternative calculation method involving the estimation of an equation for remittances sent from Spain to the principal destinations and sets out the results obtained. Finally, section 6 draws conclusions.