1. Introduction/Background

This paper outlines the current practices for the compilation and dissemination of data on remittances in Ghana’s balance of payments framework. It outlines discrepancies in this existing framework as well as the need for additional data from new MTOs and Fintech companies to address the anomalies identified in the World Bank data on inward remittances and that from Bank of Ghana’s data from the 23 authorized dealer commercial banks over the period 2016-2022. This paper also illustrates weaknesses in the country’s remittance data as against that of the assessment of World Bank’s remittance aggregates) and the need for specific practical guidance on data sources and compilation methods. The inadequacy of practical compilation guidance concerns compilers, who, as a result, often produce data that is less credible than other balance of payments components.

As defined in the Balance of Payment Manual (BPM, the balance of payments (BOP) is a statistical statement that systematically summarizes, for a specific period, the economic transactions of an economy with the rest of the world. Transactions, for the most part between residents and non-residents, consist of those involving goods, services, and income; those involving financial claims on, and liabilities to, the rest of the world; and those (such as gifts) classified as transfers, which involve offsetting entries to balance—in an accounting sense—one-sided transactions (International Monetary Fund, 1996). Balance of payments statistics are included in a broad set of economic statistics known as the national accounts. The System of National Accounts 1993 (1993 SNA) presents the conceptual framework for national accounts, and the fifth edition (1993) of the Balance of Payments Manual (the BPM) presents the conceptual framework and the structure and classification of the balance of payments. The high level of concordance between the 1993 SNA and the BPM is extremely important.

In Ghana, over the past decade, remittances have constituted an important component of balance of payments accounts, which is, usually, recorded as receipts under the capital account section by the Bank of Ghana. Ghana’s remittance receipts, in recent times, have assumed an increasing trend.  The micro- and macro-economic impact of remittances has been widely documented in the various World Bank country reports. At the macro-level, remittances stabilize the balance of payments, hence contributing to closing the large and persistent trade gaps in many countries and preserving macroeconomic stability (World Bank, 2006). At the micro-level, the development effects of remittances, with a certain degree of variety, have been documented for poverty alleviation, improving education and health outcomes, improving income distribution, and steering entrepreneurial spirit (Adams & Page, 2005). Remittances are a rapidly growing and stable source of foreign exchange inflow to several developing economies like Ghana across the world. Remittances through official sources far exceeded the size of official development assistance (ODA) and are more stable than foreign private flows such as portfolio investments like Euro-bond markets which are characterized by high volatility and distortionary tendencies due to their short life cycle. Money transfer companies (MTCs) and financial institutions were the two central means of transferring and receiving cash in Ghana before 2019. Through their global networks, these institutions have provided avenues for diaspora communities to remit money to Ghana. They offered a variety of delivery service channels, such as direct-to-account, cash to the mobile phone, cash-to-card and person-to-person transfers. Their platforms are integrated to allow money transfers from bank to bank, from MTCs to bank and through a mobile money system.

According to World Bank data on inward remittance, Ghana has witnessed a substantial rise in remittances inflow from US$2 billion in 2014, US$5 billion in 2015, US$3 billion in 2016, US$3.5 billion in 2017 to US$ 4.5 billion in 2021 and further to US$ 4.7 billion in 2022(World Bank 2022). The Bank of Ghana’s estimates of the balance of payments suggested that remittances place second after exports in terms of resource inflow in Ghana. The IMF balance of payments indicators in 2016 report that Ghana’s inward remittance receipts from the rest of the world for the past decade averaging US$ 2.9 billion per year far exceeding the surrendered gold proceeds from mining companies of US$863,356,251.30 and US$990,172,984.99 recorded in the years 2021 and 2022 respectively. From the data analysis, it could be deduced that the country must put resources into harnessing inward remittances than investing in minerals like gold, bauxite and diamond. Inward remittances have contributed in the past to the financing of Ghana’s trade deficit and kept the current account deficit manageable. Inward Remittances have impacted real exchange rate appreciation was also seen through the favourable current account balances that raise the net foreign asset position. Remittances also impact on real exchange rate through growth. Importantly, prior scholarship had associated large capital transfers between countries to improvement or exacerbation of the balance of payment thereby putting pressure on the foreign exchange rate. The Bank of Ghana’s data analysis on inward remittances has supported the Ghanaian economy more than surrendered gold proceeds from the mining companies operating in the country.  According to the Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts: Schedule of earnings from 23 authorized dealer commercial banks in the period between 2016 to 2022: Transfers – Inward Remittances US$ 1,837,506,014.80 in 2016 US$ 10,766,037,529.00 in 2017, US$1,021,916,059.59 in 2018.US$2,005,542,497.90 in 2019 US$2,310,586,691.47 in 2020 US$ 2,110,512,179.69 in 2021) US$2,121,081,266.78 in 2022).

The inward remittances to the Ghanaian economy have helped sustain the current account in Ghana’s BoPs, reduce poverty, enable capital imports and contribute to the growth of output. However, World Bank remittance reports on Ghana from 2010 to 2022 showed marked discrepancies between their reports and the Bank of Ghana’s annual remittance reports recorded on Balance of Payments (BoPs). US$ 0.14 billion in 2010 or .8% of GDP;  US$ 2.1 billion in 2011 or 10.8% of GDP;  US$ 2.2 billion in 2012 or 10.3% of GDP;  US $1.9 billion in 2013 or 5.9% of GDP; US$ 2 billion in 2014 or 7.6% of GDP; US$ 5 billion in 2015 or 20.3% of GDP; US$ 3 billion in 2016 or 10.8% of GDP;   US$ 3.5 billion in 2017 or 12% of GDP; US$ 3.5 billion in 2018 or 7.3% of GDP;  US$ 4.1 billion in 2019 or 5.2% of GDP; US$ 4.3 billion in 2020 or 5.2% of GDP; US$ 4.5 billion in 2021 or 5.9% of GDP; US $ 4.7 billion in 2022 or 6.1% of GDP.

Over the years, international trade and cross-border financial flows have become major sources of concern for both monetary and fiscal policymakers as national economies become more open to one another and the rest of the world. There has been remarkable growth in trade and exchange, not only in traditional goods and services but also in the exchange of currencies, cross-border capital movements, remittances, technology transfers and international flows of information and ideas. External sector statistics, such as the Balance of Payments (BOP), international investment position (IIP), external debts, etc. have become significantly important in monetary and fiscal policies. The BOP, in particular, records the flows of real and financial resources between residents of an economy and non-residents. It mirrors the relative strength of an economy vis-a-vis its trading partners through the recording of financial and non-financial transactions between its residents and the rest of the world. The various aggregates and accounts balances in the BOP statistics are commonly used in economic analysis and discourse. However, the economic interpretations and implications of the movements in these account balances remain a major area of dispute between economic analysts and policymakers

2. The Balance of Payments and Remittances

Remittances are an integral part of one of the major macroeconomic accounts called the Balance of Payment (BOP). The BOP is an account that records transactions between residents of a country with residents of other countries. The main factor that determines if a transaction is captured in the BOP is the issue of residency. If it is established that the transaction is between a resident and a non-resident, then the transaction is recorded in the BOP. The BOP is divided into three different accounts namely the current, capital and financial accounts. The current account records the import and export of goods and services between residents and non-residents. It also consists of a primary income account which records the returns that accrue to institutional units for their contribution to the production process or for the provision of financial assets and renting natural resources to other institutional units. The primary income could arise as proceeds of the production process or compensation of employees, and could also be associated with the ownership of financial and other non-produced assets such as property income, dividends, reinvested earnings and interest. The secondary income account is also a part of the current account and captures further redistribution of income through current transfers such as governments or charitable organizations. The capital account is defined in the BOP manual as the capital transfers receivable and payable between residents and non-residents and the acquisition and disposal of non-produced, nonfinancial assets between residents and non-residents. Non-produced, non-financial assets include natural resources; contracts, leases and licenses; and marketing assets such as trademarks, brand names, logos and domain heads. Capital transfers are transfers in which ownership of an asset changes from one party to another; which obliges one party or the other to acquire or dispose of an asset; or where a liability is forgiven by the creditor. Transfers generally infer the provision of goods, services, financial assets, or other non-produced assets from one unit to another without the corresponding return of an asset of economic value. This differentiates it from an exchange which is a transaction that requires the corresponding return of an asset of economic value. Household-to-household capital transfers may be included in the capital account as personal remittances if they are significant. The financial account records the transactions that have to do with financial assets and liabilities between residents and non-residents. Entries in the financial account may correspond to entries in the goods and services, income, capital account or other financial account entries.

3. TREATMENT OF REMITTANCES

1. Under BPM5, the line items that relate to remittances are compensation of employees, workers’ remittances, and migrants’ transfers (Reinke, 2007).
2.  Under BPM6 standard treatment, Remittances are mainly derived from two items in the BOP framework: income earned by workers in economies where they are not residents (compensation of employees) and personal transfers from residents of one economy to residents of another (IMF, 2008).
3. Personal remittances are the net compensation of employees working in economies in which they are not resident, current and capital transfers in cash or kind between resident and non-resident households.
4. Total remittances include personal remittances and social benefits. By implication, it includes all household income obtained from working abroad.
5.  Total Remittances and Transfers to Non-Profit Institutions Serving Households includes all transfers benefitting households directly or indirectly through NPISHs as well as the earnings of short-term workers abroad” (Remittances Compilation Guide).

i. Concepts of BOP Compilation

The primary sources of statistical information on remittances (and other balance of payments items) available from the IMF are also introduced. These comprise the fifth edition of the Balance of Payments Manual (BPM5) on recommended data definitions and classifications within the macroeconomic statistical framework, the Balance of Payments Compilation Guide and the Balance of Payments Textbook for compilation guidance and accessible explanations of data categories, and the Balance of Payments Statistics Yearbook for both worldwide data on external flows and metadata from country compilers. To ensure international comparability, national BOPs are compiled using a set of unified international standards and methodology. These standards, which cover issues of classification, recording, and data sources, among others, are harmonized and published by the International Monetary Fund (IMF) in the Balance of Payments and International Investments Position Manual or BPM-X. The sixth edition of the Manual, BPM-6 published in 2008 is the current methodological standard for the compilation of BOP statistics by IMF member countries. The BPM-6 defines BOP as a statistical statement that summarizes transactions between residents and nonresidents during a period. It further states that BOP consists of the goods andservicesaccount, the primary income account, the secondary income account, the capital account, and the financial account. The “primary income” and “secondary income” accounts replace the “income” and “current transfers” accounts used in BPM5, respectively. The primary income account covers transactions in income associated with the production process and ownership of financial and other non-produced assets between residents and non-residents. These include compensation of employees, investment income, dividends, reinvested earnings, interest, rent, taxes and subsidies on products. Secondary income, however, records current transfers in cash and in-kind between residents and non-residents. Current transfers cover all transfers that directly affect the disposable income of the receiving party and influence its consumption of goods and services. It includes personal transfers (such as workers’ remittances), social contributions/benefits, net non-life insurance premiums/claims, and current taxes on income and wealth. Other transfers that do not meet this criteria (do not directly affect the disposable income of recipients) are classified as capital transfers

ii Interrelationship between the BOP account balances

The BOP is compiled using some stipulated sign conventions and recording principles. Earnings by residents for exports, returns on loans and investments(interest/dividends) and incurrence of foreign liabilities are recorded as credit (positive) while payments by residents for imports, funds for investments in foreign countries and acquisition of other foreign assets are recorded as debits (negatives). Under the BPM6, the four sub-accounts in the current accounts are recorded on a credit/debit basis with a net balance generated for each of goods, services, primary and secondary income. Similar recording principles are applied to the capital account. However, the financial account is recorded in terms of net acquisition of foreign assets /netincurrence offoreign liabilities (NIL). Overall, BOP statistics are compiled for a specific period, usually a year or a quarter, and transactions are reported in a single currency (domestic currency or any other convertible currency). The Ghanaian BOP is first compiled in US dollars because most international transactions are denominated in US dollars and where otherwise, the dollar equivalents of such transactions are readily available

3. Literature Review

 Theoretical literature has shown that remittance inflows could increase economic stability by increasing foreign reserves through the exchange of monies. One major impact of remittances is its effect on the current account of the BOP.   Remittances help in raising national income by providing foreign exchange and raising national savings and investment as well as by providing hard currency to finance essential imports thereby curtailing any BOP crisis (Adelman and Taylor, 1990, Durand et al 1996a and 1996b, Claudia M. Buch et al 2002). Remittances sent in foreign currencies typically require exchange into domestic currencies. Banks can increase their foreign reserves through this process of exchange, and maintain demand for the national currency. Foreign reserves allow countries like Ghana to stabilize their currencies to a greater degree during periods of crisis. Countries like Mexico and Bangladesh have taken a more proactive approach, encouraging the use of remittance revenues in micro-enterprise efforts as part of an effort to directly integrate remittances into their development strategies. Economic stability, economic planning and fiscal transparency resulting from remittance inflows are good for U.S. companies and investors; each of these approaches creates investment climates that increase the financial stability of assets and markets in these countries (Johnson 2010). Foreign remittances have been more stable over the past years than volatile capital flows such as portfolio investment and international bank credit. Remittances are also an international redistribution from low-income migrants to their families in their home country. Under the macro level previously in the history of Ghana, foreign remittances provided much-needed foreign currency exchange, that stabilized the balance of payments, reduced dependency on international capital markets, and reallocated capital resources into more productive investments and other financial services—moving money from international to domestic, consumption to investment and urban to rural. Under micro-level individual and household level, by recognizing the socio-economic and gendered impact of remittances on families, intra-household dynamics and communities. Studies on remittances, especially in developing countries, have pointed to significant positive macroeconomic impact on these economies. There is evidence suggesting that large flows of remittances to developing countries are sometimes associated with lower levels of poverty at the individual level and an increased pace of growth as well as better health and education indicators (Fajnzylber and Lopez, 2005). Remittance flows to most developing countries are found to be countercyclical in the recipient economies as they serve as supplements to household income in periods of low economic activity (Ratha, 2007). Periods of general economic hardships arising from natural disasters or conflict usually witness high inflows of remittances that stabilize as economic conditions improve. Ratha (2007) A evidence of high remittance flows to the Mexican economy during the financial crisis of 1995 and Indonesia and Thailand in 1998. The aftermath of the 2010 earthquake in Haiti also witnessed a surge in remittances to partly reduce the financial strain that occurred as a result of the disaster. This pattern of inflows can help smoothen aggregate demand and contribute to economic growth The developmental role of remittances is well recognized and there is an increasing volume of research in that regard. Not only is this recognized at the research level, but the issue of remittances as a developmental tool, as well as its potential negative consequences, has engaged policymakers and the attention of major financial institutions such as the World Bank and IMF. IMF’s World Economic Outlook 2005 and the World Bank’s Global Economic Prospects 2006). This has resulted in an increase in discussion and research in an attempt to maximize the potential benefits of remittances to developing countries. In Ghana, there is evidence that supports the development and welfare effects of remittances. Remittances have been shown to improve individual welfare substantially and help minimize the negative economic shocks to recipient households (Quartey, 2006). Addison (2004) also documents the potential role remittances can play in the macroeconomic development of Ghana. However, many developing countries that are high recipients of capital flows (where remittance is a major component) have to grapple with the impact of these flows on the real exchange rate and the international competitiveness of their exports. Exchange rate stability was seen as a major developmental tool, especially in countries with highly volatile exchange rates, and has become a key policy issue (Gala, 2008). Most developing countries detail exchange rate target policies each fiscal year to maintain a stable currency and improve their competitiveness. With the developmental impact of a stable exchange rate in mind, much theoretical and empirical research has emerged on the major determinants of the real exchange rate and the factors that contribute to its volatility being of particular interest. However, with the increasing flow of remittances, there are growing concerns about potential negative effects. Though it is generally expected that remittances should have a positive impact on the overall economy, very large volumes of remittances relative to the size of the economy could have detrimental effects such as high inflation, inefficient resource reallocation and/or exchange rate appreciation etc. Studies on Pakistan by Hamma (2009), concerning the effect of remittance inflows on the exchange rate confirmed the experience of Dutch disease. High capital inflows led to the real appreciation of the domestic currency which made the export sector less competitive, adversely affecting the economy.

4.0 World Bank Remittance Inflows to Emerging Economies

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The World Bank classifies remittances as any form of money or goods that is received by relatives in a home country from a migrant worker living abroad. Remittances could also be goods in the form of an automobile or an electrical gadget. The IMF classifies remittances into employee compensations and personal transfers (World Bank, 2017). Since 1990, remittances to Lower Middle-Income Countries (LMICs) have, on average, been higher than official development assistance (ODA) and have also grown more steadily than private debt and portfolio equity (World Bank, 2019). In most developing countries, remittances constitute a major source of income and contribute over 20 per cent as a proportion of GDP (Orzell, 2013). World Bank (2019) projected remittances to Sub-Saharan Africa (SSA) to increase by 9.6 per cent between 2017 and 2018. The estimates by the World Bank (2019) demonstrate that inward remittances to SSAs will continue expanding, however, at a slower amount to about $51 billion by 2020. This growth pattern from 2016 is anchored on resilient financial settings in the developed host economies for migrant workers from Sub-Saharan Africa. After its slowdown in 2015 and 2016, economic growth in Africa was downgraded from 2.5 per cent in 2017 to about 2.3 per cent in 2018 and increased to 2.8 per cent in 2019. The recovery in economic growth in SSA since 2015 has been sluggish due to a slowdown in momentum in global trade and industrial activity, particularly falls in international agricultural and metal prices, and weak demand prospects and trade tariff barriers (World Bank, Africa’s Pulse, October 2018). Other factors include domestic macroeconomic instability, political instability and fragility. Thus, the recent observed data shows that while remittances to Africa appear to be on a rising trend, economic growth, on the other hand, has slowed down considerably in Sub-Sahara Africa since 2015. According to the World Bank (2019b), since 1990, migrants’ cash contributions to sub-Saharan Africa have steadily increased. In 2017, there was an increase of 9.2 per cent amounting to USD 42 billion and an increase of 9.6 per cent in 2018, totaling USD 46 billion. In 2018, Nigeria and Ghana were the highest recipients with inflows of USD 28.9 billion and USD 3.8 billion respectively. According to World Bank international remittance report (2019b), other African countries receiving high amounts were Kenya, (USD 2.7 billion) Senegal (USD 2.2 billion) and Zimbabwe (USD 1.9 billion). World Bank (2021) opined that remittance inflows to Sub-Saharan Africa returned to growth in 2021, increasing by 6.2 per cent to $45 billion. Nigeria, the region’s largest recipient, is experiencing a moderate rebound in remittance flows, in part due to the increasing influence of policies intended to channel inflows through the banking system. Countries, where the value of remittance inflows as a share of GDP is significant, include the Gambia (33.8 per cent), Lesotho (23.5 per cent), Cabo Verde (15.6 per cent) and Comoros (12.3 per cent) with Ghana achieving a meagre of 7.1% of GDP. In 2022, remittance inflows are projected to grow by 5.5 per cent due to continued economic recovery in Europe and the United States. Costs averaged 8 per cent in the first quarter of 2021, down from 8.9 per cent a year ago. Although intra-regional migration makes up more than 70 per cent of cross-border migration, costs are high due to small quantities of formal flows and utilization of black-market exchange rates.

5. Overview of World Bank and Bank of Ghana’s reports on Ghana’s Inward Remittances flows from 2016 to 2022

The World Bank estimates have put foreign remittance figures in Ghana close to $1 billion in 2003. This increase in remittances over the years has played a significant role in improving the livelihood of many recipient households. Foreign remittances represent the most stable source of income and have been the largest source of international financial flows to Ghana since 2015, accounting for about a third of total external financial inflows. According to World Bank remittances reports on Ghana  ( US$ 0.14 billion in 2010 or .8% of GDP) ( US$ 2.1 billion in 2011 or 10.8% of GDP); ( US$ 2.2 billion in 2012 or 10.3% of GDP); ( US $1.9 billion in 2013 or 5.9% of GDP) ( US$ 2 billion in 2014 or 7.6% of GDP) ;(US$ 5 billion in 2015 or 20.3% of GDP); (US$ 3 billion in 2016 or 10.8% of GDP)   (US$ 3.5 billion in 2017 or 12% of GDP); (US$ 3.5 billion in 2018 or 7.3% of GDP) ( US$ 4.1 billion in 2019 or 5.2% of GDP); (US$ 4.3 billion in 2020 or 5.2% of GDP) ;(US$ 4.5 billion in 2021 or 5.9% of GDP); (US $ 4.7 billion in 2022 or 6.1% of GDP). However, according to the Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts: Schedule of earnings from 23 authorized dealer commercial banks in the period between 2016 to 2022 indicated that actual Transfers recorded as – Inward Remittances were in 2016 US$ 1,837,506,014.80; in 2017 US$ 10,766,037,529.00; in 2018 US$1,021,916,059.59; in 2019 US$2,005,542,497.90; in 2020 US$2,310,586,691.47 in 2021 US$ 2,110,512,179.69 in 2022 US$2,121,081,266.78 thus showed marked discrepancies between the World Bank data and actual inward remittances recorded by Bank of Ghana.

6. Overview of the roles of Money Transfer Companies (MTCs) and Fintech companies licensed by the Bank of Ghana in the international remittances landscape

The payments space in Ghana has been growing since the Bank of Ghana introduced the Payment Systems and Services Act (2019) and the National Payment Systems Strategic Plan (2019-2024) to create an enabling regulatory environment which enhances financial innovations. MTCs are private companies that specialize in wiring money abroad. MTCs are widely used by migrants to transfer money to countries of origin because they are reliable, fast and convenient to use. Funds transferred through MTCs, which are located in supermarkets and other convenient places in immigrant communities, are usually available to recipients in developing countries in a matter of minutes.  In Ghana, MTCs have wider distribution networks to enable easy access to funds. While the banks, post offices and telecommunication companies are more popular for sending remittances within Ghana, several MTCs are involved in the transfer of money from other parts of the world. The major MTCs operating in Ghana include Vigo, Small World, Ria, Western Union, MoneyGram, Cigue, Unity Link and Express Money Transfer. In recent years, telecommunication companies (e.g. Tigo, Airtel, MTN, Vodafone) have been playing an increasingly significant role in money transfers in the country. This service allows Mobile Money subscribers to send and receive money transfers directly on their Mobile Money wallet in Ghana.A Dedicated Electronic Money Issuer (DEMI) in Ghana is a Fintech company licensed under Section 24 of Ghana’s Payment Systems and Services Act of 2019. Generally, a DEMI exists to offer electronic money services. The license is relatively new in the country, the first-ever DEMI license just recently in 2020. As of now, only about 5 Fintech companies have a license in Ghana —that is, apart from Airtel Mobile, Vodafone Mobile, MTN others are GCB G-Money and Yup Ghana Limited. Some other Fintech companies in the international remittances space are: – Dream Oval, ExpressPay and Zeepay, plus an MTO – PayInc Ghana Limited:  eTranzact, expressPay, in Charge, interpay, Slydepay,  Zeepay, ProfPay and WebSoft Solution which been licensed by Bank of Ghana under Payment Systems and Service Act 2019 Act 987.

7. Findings on methodological Issues in Accounting for inward remittances in Ghana’ B.O.P

Estimates on inward remittance in the B.O.P were based on statistics compiled at the back of the returns of 23 authorized dealer commercial banks on inward remittance submitted yearly. The data obtained and reviewed from the Bank of Ghana’s consolidated statements of Foreign Exchange Receipts. Statistics are provided on a monthly basis, and the aggregation of such flows from all the institutions provides an estimate of inward unrequited transfers. The main source of data for this item in the BOP was derived from the authorized dealer banks only but not taking into consideration  non-bank financial institutions, Fintech companies and others which operate money transfer schemes, and the level is the aggregate as reported. On receipt of the submitted data, the staff examines the plausibility of the estimates and where there is a need, the staff follows up with the reporting institution to validate the reported numbers

One of the major methodological issues was on the compilation and analysis as we observed major discrepancies between the World Bank data on international remittances and that of the Bank of Ghana data on inward remittances as captured on consolidated foreign exchange receipts yearly to the balance of payments data, total inward remittances to the Ghanaian economy ranged between US$2,005,542,497. 90 in 2019 and US$2,121,081,266.78 million in 2022. We noted major discrepancies between the Bank of Ghana’s inward remittance returns as part of foreign exchange receipts and the World Bank’s inward remittance reports over the period under review. According to the Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts: Schedule of earnings from 23 authorized dealer commercial banks in the period between 2016 to 2022: Transfers – Inward Remittances US$ 1,837,506,014.80 in 2016 US$10,766,037,529.00 in 2017, US$1,021,916,059.59 in 2018.US$2,005,542,497.90 in 2019 US$2,310,586,691.47 in 2020; in 2021 US$ 2,110,512,179.69; in 2022 US$2,121,081,266.78.

Figure 1.1:  Inward Remittances: Schedule of earnings from 23 authorized dealer commercial banks in the period between 2016 to 2022

Source: Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts  (2022)

Figure 1.1 shows a clear upward trend in the amount of inward remittances over the years. The total amount has consistently increased from 2016 to 2022, indicating a positive trend in the influx of foreign funds. The most significant change occurred in 2017 when there was a substantial jump in inward remittances, increasing from US$1,837,506,014.80 in 2016 to US$10,766,037,529.00 in 2017. This enormous increase is a notable outlier in the dataset and should be investigated further. In 2018, there was a decrease in inward remittances to US$1,021,916,059.59, which is significantly lower than the previous years. However, in 2019, the amount rebounded to US$2,005,542,497.90. These fluctuations might be indicative of changing economic conditions or policy changes. From 2020 to 2022, there is a consistent increase in inward remittances, with amounts of US$2,310,586,691.47 in 2020, US$2,110,512,179.69 in 2021, and US$2,121,081,266.78 in 2022. This demonstrates stability and growth in remittances during this period.

The inward remittances to the Ghanaian economy have helped sustain the current account in Ghana’s BoPs, reduce poverty, enable capital imports and contribute to the growth of output. However, World Bank remittance reports on Ghana from 2010 to 2022 showed marked discrepancies between their reports and the Bank of Ghana’s annual remittance reports recorded on Balance of Payments (BoPs).   US$ 0.14 billion in 2010 or .8% of GDP;  US$ 2.1 billion in 2011 or 10.8% of GDP;  US$ 2.2 billion in 2012 or 10.3% of GDP;  US $1.9 billion in 2013 or 5.9% of GDP; US$ 2 billion in 2014 or 7.6% of GDP; US$ 5 billion in 2015 or 20.3% of GDP; US$ 3 billion in 2016 or 10.8% of GDP;   US$ 3.5 billion in 2017 or 12% of GDP; US$ 3.5 billion in 2018 or 7.3% of GDP;  US$ 4.1 billion in 2019 or 5.2% of GDP; US$ 4.3 billion in 2020 or 5.2% of GDP; US$ 4.5 billion in 2021 or 5.9% of GDP; US $ 4.7 billion in 2022 or 6.1% of GDP.

Figure 1.2: World Bank Remittances Reports on Ghana from 2010 To 2022

Source: World Bank

Figure 1.3: Comparative Analysis of Reported Remittances: Auditor General’s Report and World Bank Data

The 23 authorized dealer commercial banks’ inward remittance returns were required to be submitted in compliance with the Foreign Exchange Act 2006 Act 723.  Over the years, authorized dealer banks and Money Transfer companies (MTCs) and banking agents have facilitated funds transfer from abroad to beneficiaries in Ghana, which were accessed largely through banking halls with the benefit of the foreign currencies being held in local banks’ nostro account with overseas correspondent banks. Mobile money and other digital channels which have been made available by payment service providers are now providing extensive, affordable, convenient, and flexible alternative means for accessing remittances by beneficiaries but foreign exchange components could not be traced and tracked to the local banks’ returns or the Bank of Ghana’s nostro balances with their correspondent banks.    Bank of Ghana had previously traced in the international has shown that Inward remittances from Western Union, MoneyGram and MTOs international remittances through the individual local banks that used the foreign exchange to supplement the foreign currencies for their customers’ import businesses. From previous practices, the local banks then submitted inward remittance returns and their usage of foreign exchange to the Bank of Ghana monthly so that they could capture international remittances in their consolidated foreign receipts. However, after a careful review of the Bank of Ghana’s operational guidelines issued in 2021 for inward remittance services by payment service providers such as MTOs and Fintech companies were supposed to operate two accounts (a) remittance inflow settlement account and (b) local settlement account without considering reimburse Nostro- accounts for which the MTOs and Fintech companies for the foreign exchange. The current practice has been operated by the Bank of Ghana, the country has not been benefiting from foreign currencies, as the MTOs and Fintech companies are holding foreign currencies in their correspondent banking accounts. Also, after careful examination of the Bank of Ghana’s consolidated foreign receipts on the Balance of Payment data from 2019 to 2022, we noted that there had been no recording, tracking and tracing of the inward remittances in the Bank of Ghana’s consolidated foreign receipts.   The Foreign Exchange Act of 2006 (Act 723) prohibits outbound remittances from Ghana unless the transaction is made through a bank while the same Act 723 prohibits inbound international remittances not made through an authorized dealer bank. The deregulation of foreign remittances had impacted negatively on the stability of the local currency and accelerated the depreciation of the Cedi after the country was barred from the international capital market in 2022.   Today, international remittances which represented the largest source of external finance for Ghana bigger than cocoa and gold over the past years, could have been significantly used to mitigate against persistent depreciation of the local currency against the major trading currencies. Given the enormous volume of remittances transferred to the Overseas from its Ghanaian workers, savings from reduced remittance costs could be recycled into the local economy and spur greater growth. Various research studies have shown that international remittance flows could lead to currency appreciation as well as improving country’s foreign exchange reserves

ii. Second, the methodological issue was about the compilation and analysis of inward remittances about the current different channels posed different challenges to the Bank of Ghana as the compiler and the ease with which data may be obtained from these various channels depends on the institutional and foreign exchange environment governing remittance transactions and data compilation. The fact that remittances are transmitted through different channels makes it difficult to capture the full amount in the balance of payments statistics of the recipient country, which tends to underestimate the actual flow of remittances. The non-compliance with the Foreign Exchange Act 2006 Act 723 by the Digital technology infrastructure companies has hindered the regulation of some entities and by extension reporting of remittance data. Still, there is sometimes an overlap of responsibilities between government institutions with poor coordination thus data reported are divergent leaving the compiler and analyst confused. In addition, a clear assignment of responsibility is necessary to know which agency is to generate remittance statistics whether the Bank of Ghana, authorized dealer commercial banks or the National Bureau for Statistics.

Iii Third, the methodological issue noted was the lack of proper attention to remittance statistics have emanated from the inability of most developing countries such as Ghana to develop an appropriate framework for tapping the potential of remittances for growth and development. In addition, most of the MTCs and Fintech don’t have their outlets for remitting monies but rather use the platforms of banks. This adds to the cost of remittances thus discouraging remitters from using formal channels and preferring to go through informal channels.

Iv Fourth, another methodological issue was the low Capacity in BOP Compilation especially in Developing Countries like Ghana accounted for the low recording of inward remittances as compared to the World Bank data on inward remittances.  Due to the complications in compiling BOP numbers, several developing countries are yet to fully migrate to the use of BPM6. Nigeria, for instance, is still using BPM6 alongside BPM5 in carrying out its analysis. The use of different approaches to compilation renders it hard to compare remittances across countries. This problem will be accentuated with the move to BPM7 when several countries are still struggling to migrate fully to BPM6.

v. Fifth, methodological compilation and analysis issue more about moreofthe licensing of more Fintech companies by the Bank of Ghana in the international remittance space since the passagePayment Systems and Service Act 2019 Act 987 without taking into cognizance of the existing Foreign Exchange Act 2006 Act 723 might have contributed to major discrepancies between the World Bank data on international remittances and Bank of Ghana data for remittance. The growing need for safer, more secure and quicker international money transfers has increased the need for digital payments and receipts globally. Digital currencies offer an obvious advantage for remittances as an alternative to the expensive and burdensome money transfer system currently available without considering the treatment of foreign exchange components. However, the low level of financial inclusion and the cyber security threats digital currencies are exposed to invigorate the reluctance with which regulatory authorities are willing to accept the use of digital currencies within their ambit

v. Sixth with increase in the remitting channels has created difficulties for the Bank of Ghana in the capturing of remittance statistics data. Remittance transaction channels are wide and varied and the choice of channel depends on a number of factors including the cost of sending money abroad, speed of delivery, information technology infrastructure at the senders and receivers’ locations hidden costs in foreign exchange transactions, safety of the funds and so on. Compilers like the Bank of Ghana of inward remittance statistics might however find it difficult to know all sources especially the informal sources through which remittances are sent. Remittance service providers are also quite innovative and new transaction channels are being developed consistently without considering the ownership of foreign exchange under existing Foreign Exchange Act 2006 Act 723. Many money transfer businesses in all parts of the world are often not registered or licensed and are not subject to any form of regulation. Reliable data and information on these channels are often lacking making it hard to track remittances through these channels

The final methodological issues in compilation and analysis are the weaknesses in the country's remittance data (including an assessment of World Bank discrepancies in remittance aggregates) and the need for specific practical guidance on data sources and compilation methods. The inadequacy of practical compilation guidance concerns compilers, who, as a result, often produce data that is less credible than other balance of payments components. Not all funds remitted by migrants will be recorded as remittances in the balance of payments framework. This sometimes contributes to the data users’ problems in identifying the data that corresponds to their analytical needs. Hence, the Balance of Payments Textbook states that “money remitted by a migrant to deposit in his or her account with a bank located abroad represents a financial investment rather than a transfer” and is therefore not a remittance (but is instead recorded as an investment asset of the sending economy). It involves a quid pro quo since the sending party acquires a claim against the deposit-taking bank abroad. Similarly, money remitted to purchase real estate or acquire control of a business would be treated as a form of investment, even if family members in the country of origin live in the house or work in the business.

8.0.CONCLUSIONS
It is important to address policy issues that impact remittances to maximize their impact on savings, investment, poverty reduction as well as the foreign exchange components of the inward remittances The relevant policy questions are how to leverage the capital potential of remittances, through the improvement of foreign exchange.  Bank of Ghana must ensure there are strategic alliances can be made between banks and Fintech companies and between Ghanaian banks and their correspondents. There is an urgent need to enhance the linkage between money transfer companies, Fintech companies and the rural bank network to track and trace the foreign exchange components of inward remittances. Bank of Ghana must ensure total compliance with the Foreign Exchange Act 2006 Act 723, AML Act 2020 Act 1044 and Anti-Terrorism Amendment Act 2014 Act 875 to ensure the continuous remittance flows to support the foreign exchange. Inward remittances remain a stable and sustainable source of foreign exchange earnings too huge to be ignored because inward remittances have contributed to the country’s foreign exchange more than cocoa and surrendered gold proceeds over the past decade.  Its benefits far outweigh the few disadvantages that have been pointed out. On the whole, remittances could salvage a whole family, community, or economy if used for the right purposes. Being able to correctly identify the channels through which remittances flow and converting them to productive uses through formalization of remittances and proper financial literacy could boost the economy and must therefore be pursued vigorously. This implies that regulatory agencies must also work together to achieve harmonization in recording remittances. I hope that this paper would have contributed to that in a small way.

Bank of Ghana’s inward remittance should be in conformance to treatment remittances in BPM6/BPM7 as total remittances include personal remittances and social benefits. By implication, it includes all household income obtained from working abroad. Now in the computation of what constitutes total remittances, compensation of employees less expenses related to border, seasonal, and other short-term workers is taken from the primary account. Added to this is a personal transfer which is taken from the secondary account. Capital transfers between households and social benefits are also included in the computation of remittances. Social benefits include benefits payable under social security funds and pension funds either in cash or in kind. Remittances are mainly derived from two items in the BOP framework: income earned by workers in economies where they are not residents (compensation of employees) and personal transfers from residents of one economy to residents of another (IMF,2008). These are the standard items in the BOP framework. All other definitions are supplementary items which compiling countries are not required to compile but are encouraged to do. These supplementary items include personal remittances, total remittances, and total remittances and transfers to non-profit institutions serving households

Bank of Ghana’s compilation of remittance aggregates can be a very tricky job because no single data item in the balance of payments framework comprehensively captures transactions in remittances. This paper has taken a critical look at some of the issues in the compilation and analysis of remittances in BPM6/BPM7. Bank of Ghana should critically address those relevant outstanding issues that arise from the compilation and analysis of remittances, difficulty in obtaining migration and other statistics, identification of transaction channels, and lack of coordination between regulator and MTCs and Fintech companies in the tracking and tracing of foreign currencies that have been deposited in their respective nostro- accounts.  Bank of Ghana must adopt proactive measures to ensure that all international remittances are captured and managed effectively as they could contribute to foreign exchange reserves that could support the stability of local currency (Cedi). To carry out effective and efficient public policies to channel remittances into productive projects, the government has to look at what motivates Ghanaians to send money home, particularly beyond individual family remittances, and craft its policies to take advantage of it. While the policies and initiatives undertaken so far to augment the impact of remittances are primarily aimed at encouraging the sending of remittances through official channels, the utilization aspect of remittances has been largely ignored by the government authorities. Hence, directing remittances to productive investments is a challenge for the government. Families of migrant workers should be encouraged and trained so that they can undertake small businesses. This will generate jobs and help improve the domestic economy. In the long run, migrant workers can come back and be reintegrated into the country, bringing in better skills and technology.

9. Policy Recommendation

First, the Bank of Ghana must strengthen its procedures and processes of capturing global inward remittance data collection and analysis (including an assessment of the World Bank yearly remittance aggregates) to improve on remittance data and the need for the Bank of Ghana to adopt specific practical guidance on data sources and compilation methods to improve on the existing methodology to address the discrepancies between Bank of Ghana data and World Bank inward remittance data. The adequacy of practical compilation guidance concerns compilers, who, as a result, often produce data that is more credible than other balance of payments components.

Second, the Ministry of Finance and Bank of Ghana must ensure the MTCs and Fintech companies in the international remittances space reimburse the Bank of Ghana’s Nostro Accounts or authorized dealer commercial bank with all foreign exchange components of all foreign exchange accrued as it was previously done in the early 2000s and also in compliance with Foreign Exchange Act 2006 Act 723.  Foreign exchange from international remittances, for instance, could help to reduce the current account deficit and also help to stabilize the local currency against major trading currencies like US$, Euro and UK Pound Sterling. The Bank of Ghana should be prepared to reconcile the Nostro Accounts of all MTC and Fintech companies. Bank of Ghana should commission some of the international audit firms to conduct forensic audits on all MTC and Fintech companies. In other emerging economies like Sri Lanka, Bangladesh and Pakistan, remittances have been a key pillar of foreign currency earnings providing a substantial cushion against the widening trade deficit and thereby enhancing the external sector resilience of the country. Being a major source of foreign exchange earnings, workers’ remittances have covered around 80 per cent of the annual trade deficit, on average, over the past two decades, MTOs and Fintech companies are required to report to central banks. Moreover, unlike many merchandise export categories, there is no import content involved in this source of foreign exchange earnings. Therefore, strengthening remittance inflows to the country brings several macroeconomic and socioeconomic benefits, mainly narrowing the current account deficit of Balance of Payments (BOP), supporting economic growth, improving forex liquidity in the banking system, alleviation poverty, income disparities and regional disparities, and, reducing the fiscal burden on social security payments

Bank of Ghana must commission external audit firms to conduct forensic audits on the MTOs and Fintech companies' nostro accounts that are benefitting from foreign currencies as against the Foreign Exchange Act 2006 Act 723. Banks are recognized as the main providers of international remittance services in Ghana in the Foreign Exchange Act 2006 (Act 723).• Act 723 sets out Ghana’s foreign exchange regime, specifying that all inward or outward payments of foreign currency must be made by a bank or authorized dealer.• To operate in the market, all remittance providers must partner with a bank and use the daily interbank exchange rates published by the Bank of Ghana.• The Act prohibits non-bank entities from sending remittances out of Ghana as well as handling foreign currencies.

Third, the Ministry of Finance, Minister of Foreign Affairs and Regional Integration, and Bank of Ghana, together with their development partners like the World Bank, need to come to a judgment as to whether or not remittances are likely to be a permanent phenomenon in Ghana’s Balance of Payments (BoPs). Drawing on the experience of other countries which have managed significant inflows of remittances (Bangladesh, El Salvador, Jordan) could be an important starting point. Also, conducting a comprehensive survey to assess the actual scale of remittances and labour migration would help the authorities develop a well-defined strategy to maximize the benefits of remittances while minimizing any negative repercussions.

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