Global Remittances Face Challenges Amid Economic Headwinds

 The World Bank's latest Migration and Development Brief reveals that remittances to low- and middle-income countries  experienced a growth of 3.8% in 2023, albeit at a slower pace than in previous years. Despite resilient labor markets in advanced economies and Gulf Cooperation Council countries, concerns arise about the potential decline in real income for migrants in 2024 due to global inflation and low growth prospects.

In 2023, remittance flows to Developing countries reached an estimated $669 billion, with Latin America and the Caribbean (8%), South Asia (7.2%), East Asia and the Pacific (3%), and Sub-Saharan Africa (1.9%) witnessing growth. However, the Middle East and North Africa experienced a 5.3% decline for the second consecutive year, primarily driven by a sharp drop in flows to Egypt. Remittances to Europe and Central Asia also fell by 1.4% after a notable 18% increase in 2022.

The United States remained the largest source of remittances, with the top five recipient countries being India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion). Economies heavily reliant on remittances for funding current account and fiscal shortfalls include Tajikistan (48%), Tonga (41%), Samoa (32%), Lebanon (28%), and Nicaragua (27%).

The report anticipates a further softening of remittance growth to 3.1% in 2024 due to weaker global economic activity, sluggish job markets in high-income countries, and additional risks such as volatile oil prices and currency exchange rates.

Iffath Sharif, Global Director of the Social Protection and Jobs Global Practice at the World Bank, highlighted the impact of inflation and subdued global growth on migrants, stating, "Labor markets and social protection policies in host countries should be inclusive of migrants, whose remittances serve as a vital lifeline for developing countries."

Despite the growth in remittances, the report highlights persistently high remittance costs, averaging 6.2% to send $200 as of the second quarter of 2023. Banks remain the costliest channel for remittances (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, stressed the potential of remittances for private capital mobilization and development finance, stating, "Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing."

The report also explores how diaspora finances can be mobilized for development, emphasizing the role of diaspora bonds in directly tapping into diaspora savings held abroad. It suggests leveraging future remittance inflows as collateral to lower the costs of international borrowings by developing countries.

Regional Remittance Trends:

East Asia and the Pacific: Remittances increased by an estimated 3% to $133 billion in 2023. Excluding China, remittances to the region grew 7% to $83 billion, supported by sustained growth in flows to the Philippines. The average cost of sending $200 to the region was 5.9%. In 2024, remittance growth is estimated to be 2.4%.

Europe and Central Asia: Remittance flows declined by 1.4% to $78 billion in 2023, attributed to an unusually high base level in 2022 and lingering weakness in flows to Russia and Ukraine. The average cost of sending $200 to the region was 6.9%. In 2024, remittances are projected to decline by 1.2%.

Latin America and the Caribbean: Remittance flows are expected to increase by 8% to reach $156 billion in 2023, influenced by a strong labor market in the United States. Remittances to Mexico, the region's largest recipient, are projected to increase by 9.7%. Growth is expected to slow to 4.4% in 2024.

Middle East and North Africa: Remittances are expected to decline by 5.3% to $61 billion in 2023, driven mainly by a sharp drop in flows to Egypt. In 2024, remittance flows are projected to recover with a 2.1% gain.

South Asia: Remittances are estimated to have grown by 7.2% in 2023, reaching $189 billion. In 2024, growth is expected to fall to 5% due to projected weaker economic growth in major host countries.

Sub-Saharan Africa: Remittances are expected to have increased by about 1.9% in 2023 to $54 billion. In 2024, remittance flows to the region are projected to increase by 2.5%.

The report underlines the critical role of remittances in supporting developing economies and emphasizes the need for inclusive policies to protect migrants during economic uncertainties.