By J C Suresh
TORONTO - A new report has highlighted the importance of funds remitted home by migrants, which are now nearly three times the size of official development assistance given by rich developed nations and larger than private debt and portfolio equity flows to developing countries. They exceed the foreign exchange reserves in at least 15 developing countries, and are equivalent to least half of the level of reserves in over 50 developing countries, says the latest issue of the World Bank’s Migration and Development Brief.
As many emerging markets are confronted with a weakening balance of payments, the importance of remittances as a source of foreign currency earnings is increasing, authors of the Brief say. They expect funds remitted by migrants to the developing world to increase by 6.3 percent to reach $414 billion in 2013. Worldwide, these flows could touch nearly $550 billion in 2013. The true size of remittances, including unrecorded flows, is believed to be significantly larger.
The Brief was prepared by Dilip Ratha, Christian Eigen-Zucchi, Sonia Plaza, Hanspeter Wyss, and Soonhwa Yi.
Consistent with the World Bank’s economic growth projections, remittance flows are expected to register an average annual growth rate of over 8 percent during 2013-2016, to reach $540 billion in developing countries and over $700 billion worldwide by 2016.
This increasing trend is projected in spite of the fact that (a) Antigua & Barbuda, Chile, Latvia, Lithuania, Russia, and Uruguay are now classified as high-income and no longer included in the group of developing countries; and (b) countries are now using the new definition of remittances following the Sixth Edition of the IMF Balance of Payments and International Investment Position Manual.
The latest estimates reflect recent changes to The World Bank Group’s country classifications, with several large remittance recipient countries, such as Russia, Latvia, Lithuania and Uruguay no longer considered developing countries. In addition, the data on remittances also reflects the International Monetary Fund’s changes to the definition of remittances that now exclude some capital transfers, affecting numbers for a few large developing countries like Brazil.
The top beneficiaries of officially recorded remittances for 2013 are India (with an estimated $71 billion), China ($60 billion), the Philippines ($26 billion), Mexico ($22 billion), Nigeria ($21 billion), and Egypt ($20 billion). Other large recipients include Pakistan, Bangladesh, Vietnam, and Ukraine.
As a percentage of Gross Domestic Product (GDP), the top recipients of remittances, in 2012, were Tajikistan (48 percent), Kyrgyz Republic (31 percent), Lesotho and Nepal (25 percent each), and Moldova (24 percent).
The World Bank’s Brief says that the growth of remittances has been robust in all regions of the world, except for Latin America and the Caribbean (LAC). It points out that in South Asia, remittances are noticeably supporting the balance of payments. In Bangladesh, Nepal, Pakistan and Sri Lanka, remittances are larger than the national foreign exchange reserves.
All these countries (most notably, Pakistan) have instituted various incentives for attracting remittances. In India, remittances are larger than the earnings from IT exports. With the weakening of the Indian rupee, a surge in remittances is expected as nonresident Indians take advantage of the cheaper goods, services and assets back home. Remittances to India are expected to reach $71 billion in 2013.
In Latin America and the Caribbean, the growth of remittances has been impacted by the U.S. economic situation. In particular, remittances to Mexico have declined again in recent months, presumably because of a lagged effect of the slowdown in migration flows to the U.S. after the global financial crisis.
In the Middle East and North Africa, displacement of people due to conflict has assumed critical proportions, especially as nearly two million Syrians have moved to neighboring countries as refugees, says the Brief.
The direction of remittances is in fact unclear. In 2010, the last date for which data are available, Syria received over $1.6 billion in remittances. With conflict, more inward remittances are expected to from those already abroad, to help families and friends. However, the recently displaced people are also expected to take funds with them or receive remittances from Syria.
“On balance, we expect remittances to Syria to rise modestly. Remittances to Egypt have nearly tripled since 2009, to reach $20 billion in 2013,” authors of the Brief say. For comparison, the revenue from Suez Canal is now about one-third of remittances.
The Brief also highlights that the high cost of sending money through official channels continues to be an obstacle to the utilization of remittances for development purposes, as people seek out informal channels as their preferred means for sending money home. The global average cost for sending remittances is 9 percent, broadly unchanged from 2012.
While remittance costs seem to have stabilized, banks in many countries have begun imposing additional ‘lifting’ fees on incoming transfers, including remittances. Such fees can be as high as 5 percent of the transaction value.
Some international banks are also closing down the accounts of money transfer operators because of money laundering and terrorism financing concerns.
The Brief stresses that there are more than 230 million international migrants and over 700 million internal migrants. The number of people impacted by migration – via remittances, trade, investments, philanthropy, transfer of skills and technology – is even larger. “There is thus a case for including migration in the post-2015 development agenda,” the Brief’s authors say.
“The international migration community is considering the goal of reducing migration costs (including costs of recruitment, visa, passport and residency permit) as a possible candidate for the post-2015 agenda. If this goal received the kind of attention that G20 has paid to reducing remittance costs, far larger development impacts could be expected,” according to the World Bank’s Migrant and Development Brief. [IDN-InDepthNews – October 3, 2013]
Picture: An elderly woman counts money in China. © Curt Carnemark/World Bank