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Labour migration and associated remittances have been a largely unexpected result of the transition of Tajikistan to a market economy. Against a background of economic instability and civil distress, migration from Tajikistan and the consequent remittances have been unprecedented in their magnitude and economic impact, with flows of remittances reaching around 50% of GDP. The purpose of this paper is to contribute to the discussion of the macroeconomics of remittances, fitting them into a number of standard macroeconomic models.

Policy challenges linked to remittances are reported as the following:

• they tend to support immediate private consumption, rather than financing investment needed to underpin longer-term growth
• in a small economy with a shallow foreign exchange market and insufficient instruments for the conduct of monetary policy, the magnitude of foreign currency inflows and their seasonal pattern create significant uncertainties for monetary management
• the inflow of remittances may lead to an appreciation of the national currency, which can potentially hamper competitiveness
• remittances contribute to the expansion of the trade deficit. A substantial portion of remittances is used to finance imports, as most consumer goods, other than traditional food, and virtually all investment goods, are imported
• remittances create a strong disincentive for domestic savings
• remittances outside the banking system may be a more fertile ground for money laundering than remittances through the banking system
• the human price of remittances is the exodus of local labour
• the inflow of remittances represent a serious moral hazard problem, diminishing pressure for domestic reforms.

Some recommendations are:

the authorities need to draw on the experience of other countries which have managed significant inflows of remittances
• conducting a comprehensive survey to assess the actual scale of remittances and labour migration would help the authorities to develop a well-defined strategy to maximize the benefits of remittances while minimising any negative repercussions.

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