Weak NZ dollar cuts refugee remittances, adds to pressure

Friday 13th March 2009

Refugees are the hidden victims of a weak New Zealand dollar as the currency's dwindling spending power cuts the value of funds sent to their families in home countries such as Somalia.

The New Zealand dollar has tumbled 35% against the U.S. dollar in the past 12 months, meaning every kiwi dollar earned buys a third less greenbacks, the preferred currency to send home.

While a weak kiwi drives up import costs for New Zealand, it can have far-reaching ramifications for people living hand-to-mouth and dependent on funds from relatives overseas.

"It's difficult to explain why they cannot send the same amount of money back to their family," said Adam Awad, executive chairman of Wellington-based ChangeMakers Refugee Forum. "If you say to them 'it's the financial crisis around the world,' they say, 'what does that mean?'" he said.

Refugees from lawless, war-torn countries such as Somalia worry that the drop in funds could be devastating for families in the home countries, who may be living in camps or dependent on aid, Awad said.

Refugees "work as much as they can to send money back, or otherwise their families will die," he said.

Remittances from nationals working abroad are a multi-billion dollar phenomena. Filipinos living in countries ranging from Saudi Arabia to Japan sent a record US$16.4 billion home in 2008, making their contribution a significant part of the Philippines economy.

Earlier this month, Uganda's Finance Minister Syda Bbumba cited the impact of the global economic slump on remittances and exports when he cut his forecast for his nation's economic growth this year. The World Bank singled out developing nations when it predicted the first global recession since World War II.

Its March 8 report said economic growth has suffered in 94 of 116 developing countries and noted that poverty was on the increase in 43 nations. Chief economist Justin Lin said developing nations are being hurt by tighter credit, withdrawal of aid and investment and a reduction in funds sent home by nationals working abroad.

In New Zealand, refugees feel under pressure to try to put aside more money, Awad said.

New Zealand's dollar rose to more than 52 U.S. cents after Reserve Bank Governor Alan Bollard indicated he's almost done slashing interest rates, with the domestic economy predicted to trough mid-year. He cut the official cash rate to a record low 3% as expected and said any further reductions would be smaller.

"The RBNZ made it clear that the future path of monetary policy is dependent on how the outlook for growth, both here and abroad, unfolds," said Danica Hampton, currency strategist at Bank of New Zealand.

"We suspect economic activity in NZ will disappoint the RBNZ's expectations and remain comfortable with our current forecasts of the OCR falling to 2% by mid year," she said.

By Paul McBeth, Businesswire.co.nz

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