Remittance flows to low- and middle-income countries is projected to have grown by 7.3 percent to reach $589 billion in 2021, according to new estimates from the World Bank’s Migration and Development Brief.
This return to growth is more robust than earlier estimates and follows the resilience of flows in 2020 when remittances declined by only 1.7 percent despite a severe global recession due to COVID-19, the Brief highlighted.
For a second consecutive year, remittance flows to low- and middle-income countries (excluding China) are expected to surpass the sum of foreign direct investment (FDI) and overseas development assistance (ODA). This, according to the World Bank, underscores the importance of remittances in providing a critical lifeline by supporting household spending on essential items such as food, health, and education during periods of economic hardship in migrants’ countries of origin.
Significance of remittances during the pandemic
Michal Rutkowski, World Bank Global Director for Social Protection and Jobs stated that remittance flows from migrants have greatly complemented government cash transfer programs to support families suffering economic hardships during the COVID-19 crisis.
“Facilitating the flow of remittances to provide relief to strained household budgets should be a key component of government policies to support a global recovery from the pandemic”.
Michal Rutkowski
According to the Brief, factors contributing to the strong growth in remittance are migrants’ determination to support their families in times of need, aided by economic recovery in Europe and the United States which in turn was supported by the fiscal stimulus and employment support programs.
In the Gulf Cooperation Council (GCC) countries and Russia, the recovery of outward remittances was also facilitated by stronger oil prices and the resulting pickup in economic activity.
Regional Remittance Trends
Remittances registered strong growth in most regions. Flows increased by 21.6 percent in Latin America and the Caribbean, 9.7 percent in Middle East and North Africa, 8 percent in South Asia, and 5.3 percent in Europe and Central Asia.
Remittance inflows to Sub-Saharan Africa (SSA) returned to growth in 2021, increasing by 6.2 percent 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, the authors highlighted.
In 2022, remittance inflows in SSA are projected to grow by 5.5 percent due to continued economic recovery in Europe and the United States.
In East Asia and the Pacific, remittances fell by 4 percent but excluding China, remittances registered a gain of 1.4 percent in the region. In Latin America and the Caribbean, growth was exceptionally strong due to economic recovery in the United States and additional factors, including migrants’ responses to natural disasters in their countries of origin and remittances sent from home countries to migrants in transit.
Cost of sending money
The cost of sending $200 across international borders continued to be too high, averaging 6.4 percent of the amount transferred in the first quarter of 2021, according to the World Bank’s Remittance Prices Worldwide Database.
According to the World Bank, this is more than double the Sustainable Development Goal target of 3 percent by 2030. It is most expensive to send money to Sub-Saharan Africa and lowest in South Asia.
Costs averaged 8 percent in the first quarter of 2021, down from 8.9 percent a year ago. In South Asia, it costs an average of 4.6 percent to send money. Although intra-regional migration makes up more than 70 percent of cross-border migration, costs are high due to small quantities of formal flows and utilization of black-market exchange rates, the brief stated.
The brief further disclosed that data reveal that costs tend to be higher when remittances are sent through banks than through digital channels or through money transmitters offering cash-to-cash services.
Policy responds to include migrants
Dilip Ratha, lead author of the Brief, stated that the immediate impact of the crisis on remittance flows was very deep, as such, the surprising pace of recovery is welcome news.
“To keep remittances flowing, especially through digital channels, providing access to bank accounts for migrants and remittance service providers remains a key requirement. Policy responses also must continue to be inclusive of migrants especially in the areas of access to vaccines and protection from underpayment”.
Dilip Ratha
Remittances are projected to continue to grow by 2.6 percent in 2022 in line with global macroeconomic forecasts. A resurgence of COVID-19 cases and re-imposition of mobility restrictions poses the biggest downside risk to the outlook for global growth, employment and remittance flows to developing countries. The rollback of fiscal stimulus and employment-support programs, as economies recover, may also dampen remittance flows.
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