Remittances to low and middle income countries (LMIC) are expected to grow by 1.4 per cent to reach $656 billion in 2023, following a remarkable 8.0 per cent growth in 2022 and 10.6 per cent in 2021.
In its latest Migration and Development Brief, the World Bank cited softening economic activity in remittance source counties resulting in reduced employment and wage gains for migrants as the main reason for the slowdown. Besides economic growth and the employment levels of foreign workers, the other two variables that affect remittance flows are oil prices, especially in the GCC countries and Russia, as well as the exchange rates of local currencies with respect to the US dollar.
“In many remittance-recipient countries facing balance of payments difficulties and the emergence of gaps between the official and the market exchange rate, remittance flows may shift to informal channels, which can potentially underestimate the true size of official data on remittance flows,” the Washington-based global lender said in its report.
GCC countries host around 35 million migrant workers or approximately 10 per cent of the global migrants. These foreign workers mostly come from LMICs such as India, Jordan, Egypt and the Philippines. In the early 2000s, the total outbound remittances for the GCC countries stood at $25.77 billion. In 2021, this soared to $134 billion, making the region the number one for outward remittances with the UAE and Saudi Arabia ranked among the top three along with the US. A study done by Western Union among 1,000 UAE residents showed that 76 per cent said they would be sending more money in 2023.
In 2022, the top five recipient countries for remittances were India (which received $111 billion, a growth of 24 per cent), Mexico ($61 billion), China ($51 billion), the Philippines ($38 billion) and Pakistan ($30 billion). “This remarkable, consecutive year-on-year growth was supported by several factors such as strong oil prices in the GCC countries, which increased migrants’ incomes; large money transfers from the Russian Federation to countries in Central Asia; and the strong labour market in the United States and other advanced migrant destination economies.”
Dilip Ratha, lead author of the report, added that “remittances have become a financial lifeline in many economies through the pandemic and will become even more so in the foreseeable future.”
In 2023, however, slower growth in remittances is expected in all regions, notably in Europe and Central Asia (1.0 per cent) and South Asia (0.3 per cent). In Europe and Central Asia, remittances are slowing down because of lower Russian demand for their workers in Russia from that region, and the weakening of the ruble against the US dollar. In South Asia, growth in remittances is expected to slow due to worldwide layoffs in the information technology IT sector globally and the possible diversion of remittance flows to informal channels as domestic economic uncertainties worsen in some recipient countries.
According to the World Bank, India, which represented 63 per cent of South Asia’s remittance flows in 2022, is expected to post a growth of just 0.2 per cent in remittance inflows in 2023. Slower growth in OECD and GCC economies, high base effects are few reasons behind this slowdown.
In India, remittances represented only 3.3 per cent of GDP in 2022. Remittance inflows from the GCC countries account for about 28 per cent of India’s total remittance inflows.
By contrast, the growth rate of remittances is expected to remain relatively strong in Latin America and the Caribbean region (3.3 per cent). Most of the senders of remittances to this region are based in the United States, where both the employment levels and wages of Hispanics and foreign-born workers and their wages have been strong. Growth rates of remittance flows are expected to be 1.5 per cent in the Middle East and North Africa, 1.0 per cent in East Asia and the Pacific region, and 1.3 per cent in Sub-Saharan Africa.
“Remittances are highly complementary to government cash transfers and essential to households during times of need,” said Michal Rutkowski, the World Bank’s global director for its social protection and jobs practice, in a statement.
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