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Remittances to countries with low and middle incomes experienced a growth of 3.8% in 2023, showing a slowdown compared to the substantial increases of the preceding two years.
The World Bank’s latest Migration and Development Brief, released on Monday, highlights concerns over a potential drop in real income for migrants in 2024 due to global inflation and limited growth prospects.
In 2023, remittances to these countries are estimated to have reached $669 billion, bolstered by strong labour markets in advanced and Gulf Cooperation Council (GCC) countries, which aided migrants in sending money home.
Regionally, remittance inflows increased in Latin America and the Caribbean (8%), South Asia (7.2%), East Asia and the Pacific (3%), and Sub-Saharan Africa (1.9%). However, inflows to the Middle East and North Africa decreased for the second consecutive year, falling by 5.3%, largely due to a significant reduction in flows to Egypt.
Remittances to Europe and Central Asia also declined by 1.4%, following a more than 18% increase in 2022.
The United States remained the top remittance-sending country. The leading recipient countries in 2023 were India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).
In economies like Tajikistan (48%), Tonga (41%), Samoa (32%), Lebanon (28%), and Nicaragua (27%), remittances form a large portion of the GDP, underlining their importance in addressing current account and fiscal deficits.
The growth of remittances to these countries is projected to slow further to 3.1% in 2024, influenced by weaker global economic activity. Factors contributing to this forecast include slower economic growth and potentially weaker job markets in several high-income countries. Other risks include fluctuating oil prices and exchange rates, and a more severe economic downturn in high-income countries.
Iffath Sharif, Global Director of the Social Protection and Jobs Global Practice at the World Bank, said, “During crises, migrants have shown resilience in supporting their families back home despite risks. However, high inflation and subdued global growth impact the amount they can send. Labour markets and social protection policies in host countries should include migrants, as their remittances are crucial for developing countries.”
The Bank’s Remittances Prices Worldwide Database reveals that remittance costs remain high, averaging 6.2% for sending $200 as of the second quarter of 2023.
Compared to the previous year, the cost of sending money to all regions increased, except for the Middle East and North Africa. Banks are the most expensive remittance channel (average cost of 12.1%), followed by post offices (7%), money transfer operators (5.3%), and mobile operators (4.1%).
Dilip Ratha, lead economist and lead author of the report commented, “Remittances are a key source of private external finance expected to grow in the next decade. They should be used to mobilize private capital for development finance, particularly through diaspora bonds. Remittance flows to developing countries have recently exceeded the combined total of foreign direct investment and official development assistance, and this gap is widening.”
The Brief includes a special section on mobilising diaspora finances for development and improving a country’s debt position.
Diaspora bonds can directly access diaspora savings abroad. Many countries offer nonresident deposits to attract diaspora savings, which, unlike diaspora bonds, tend to be short-term and volatile.
Future remittance inflows can be used as collateral to reduce the costs of international borrowing for developing countries. Due to their size, counter-cyclical nature, and indirect contribution to public finances, remittances can also enhance a country’s sovereign ratings and debt repayment capacity.
Read the report here.
