Money sent home by relatives working abroad are better sources of foreign funds than the usual overseas development assistance (ODA)packages, a recent study pointed out.

David Singer of the Massachusetts Institute of Technology said in his study that "To the extent that remittances help to stave off balance of payments difficulties, developing countries with substantial remittance inflows might be less likely to engage the services of the International Monetary Fund and the World Bank."

Unlike nearly all other sources of foreign capital, the study said remittances are more stable and move countercyclically relative to the recipient country's economy.

In other words, remittances are seen as a form of insurance for developing countries against economic downturns, financial crises, and natural disasters.

"Migrants tend to increase their remittances when their countries of origin experience economic downturns. As a result, remittances smooth the incomes of families and shield policymakers from the vagaries of the global economy," the report said.

Not a substitute

Dilip Ratha, lead economist of the World Bank's Migration and Remittances Team, stressed that remittances could not be used as a substitute for ODAs as the two external sources of capital flows serve different purposes.

"We don't use remittances to fill financing gaps, unlike ODAs," Ratha said in a Manila forum on Monday.

As only a limited number of people directly benefit from remittances in developing countries, Ratha said there will always be need for ODAs.

"Remittances come from migrants' income in exchange for work. It's not a form of charity (like ODAs)," he said.

This year, Ratha said remittances from overseas Filipino workers are expected to drop to 4 percent as a result of the global slowdown. The said figure is lower than the projected 5 to 8 percent decline in remittances in developing countries.

Despite the perceived slowdown in remittance and migration flows, Ratha said the existing stock of international migrants is unlikely to decrease significantly this year.