Economic Policy Review ISSN 1313 - 0544

BG Remittances

08.02.2010
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Part of disposable income in each country comes from funds earned in another country and sent or brought home. The difference between money received from abroad and paid to foreigners determines whether a country is a net exporter or importer of labor. As it could be expected, these flows have the largest positive values (as % of GDP) in less developed countries where emigration and seasonal employment in other countries are most significant*.

The situation in Bulgaria 

With some uncertainty related to difficulties in calculating and reporting emigrants' money, it can be assumed that the category "Compensation of employees" in current account balance reflects a significant proportion of these funds. These are practically wages, salaries and other payments for official work, paid by non-residents to Bulgarians. Here is included the estimated amount of funds received as a result of informal employment.**


Emigrant's money in Bulgaria

 

Remittances*, mln.lv

GDP, mln. lv

% of GDP

Growth of GDP in EU15

2006

2 015

49 361

4,1

3,0

2007

2 470

56 520

4,4

2,7

2008

2 850

66 728

4,3

0,6

2009 (to November)

2 011

65 482**

3,1

-4,0

Source: Bulgarian National Bank, own calculation

*Category "Compensation of Employees" balances of payments

** Estimate of Bulgarian National Bank

It is evident from the table that over the past year remittances decreased significantly. Even if we assume that in the last two months of 2009 the average monthly volume of funds is transferred (the dynamic in the previous years showed no growth in November and December), the total yearly amount is lower than in 2008, both as nominal, and as a percentage of GDP.

The major reasons for this decline can be two:

  • Bulgaria has become an attractive country with adequate and well-paid jobs for skilled and unskilled labor, or
  • External factors such as financial and economic crisis have reduced the work opportunities and/ or wages abroad as a whole, including for Bulgarians***

Without any further study, it could be strongly argued that the second factor is more important to weaken the remittances. One proof of this is the direct connection of the transferred funds to Bulgaria and the real growth of the 15 old EU member states, which are major emigration destination for Bulgarians.

The negative effects on the economy as a whole caused by the fall in money sent in 2009, as well as the expectation for further decline this year, will be mostly caused by the lower disposable income of people earning it / sending it, respectively, and will lead to contraction of basic household and social expenditures and not so much of investments and potential growth. ****

In addition to the remittances' macroeconomic effects, is a more important aspect worth mentioning: when Bulgaria as a net exporter of labor will become a net importer (and not only the most unskilled) and is it possible this to happen faster.

*In some countries, like Haiti and Tonga, the funds sent back by emigrants in different years reach 30 and even 40% of GDP

** This is calculated indirectly using the following methodology:

http://www.bnb.bg/bnbweb/groups/public/documents/bnb_download/st_m_instr_bop_705_bg.pdf  
*** For complete information on the topic and data from 1998 to 2003, cf. Study of IME: Bulgarian migration: incentives and constellations"- http://ime.bg/en/articles/bulgarian-migration-incentives-and-constellations/  

**** "Do Workers' Remittances Promote Economic Growth" -

http://www.imf.org/external/pubs/ft/wp/2009/wp09153.pdf