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The Remittance Curse

Tajikistan receives more than $1 billion in remittances each year from Tajiks overseas, equivalent to a staggering 36 percent of the GDP of the notoriously corrupt country. And because most of the country's 7 million citizens lack sanitation, clean drinking water, and healthcare, you might think that this influx of cash is a saving grace for Tajiks on the receiving end.

Not necessarily. According to a new study by the International Monetary Fund (IMF), remittances may actually encourage government corruption and ineffectiveness. In an analysis of 111 countries between 1990 and 2000, researchers found that high levels of remittances often lead to greater corruption and irresponsible economic policies. In other words, officials in remittance-rich countries are often let off the hook for failing to provide basic services, freeing them to divert resources for their own purposes. "[T]here's less of an incentive for citizens to demand reforms" when remittances are high, explains Ralph Chami, a division chief at the IMF Institute and a coauthor of the report. And because the government assumes citizens with help from abroad will turn to the private sector for essential services such as healthcare and education, leaders face little pressure to change. "The government says, 'I know you're getting money; what’s my incentive to fix [the] situation?'" says Chami.

But not everyone is persuaded by the study's findings. Dilip Ratha, a World Bank expert on remittances, argues that though the risk of dependency on remittances exists, "one has to... put things in perspective and recognize that... the good things completely swamp the bad." But if a little extra cash helps a family get through tough times, it can also buy a corrupt government time to stall reform.


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