The amount of money sent home by migrant workers surged to an expected $794 billion in 2022. This cash is a lifeline for people in low and middle-income countries, and it is the biggest contributor to some nations’ economies, the World Bank says.
But flows are at risk in 2023 from a further escalation of the war in Ukraine, and the possibility of a deeper-than-expected recession in the developed world.
Money sent home by migrant workers is a lifeline to people in low and middle-income nations, and new data shows that the amount sent to these countries in 2022 is estimated to have risen by almost 5 per cent to $626 billion, reports the World Economic Forum.
Biggest remittances in 2022
The top five nations for remittances in 2022 are expected to be India, topping $100 billion for the first time, followed by Mexico at $60 billion, China at $51 billion, the Philippines at $38 billion, and Egypt at $32 billion.
Mexico is seen overtaking China – which was in second position in 2021 – partly as a result of the strength of the US dollar, the World Bank said. Pakistan received $29 billion while Bangladesh and Nigeria each received $21 billion.
Remittances contribute 50 per cent of the GDP of Tonga, 38 per cent of GDP in Lebanon, 34 per cent in Samoa, 32 per cent in Tajikistan, 31 per cent in Kyrgyzstan and more than a fifth of GDP in Gambia, Honduras, El Salvador, Haiti and Nepal.
“Migrants contribute massively to their origin countries by transferring financial and social remittances, encouraging trade linkages and making investments,” says the World Economic Forum report Migration and Its Impact on Cities.
Almost 8 million Ukrainians have fled to the European Union since Russia attacked their homeland in February 2022, and the money they have sent home has boosted total remittances to countries in Europe and Central Asia by 10.3 per cent.
At the same time, individual Russians and small companies that have relocated to neighbouring countries during the war have increased the inflow of Roubles into those nations, the World Bank says.
Not all remittances are sent from rich to less well-off nations. The Russian invasion of Ukraine caused the amount of money sent home by Ukrainians living abroad to rise sharply, pushing total worldwide remittances to $794 billion, according to the World Bank.
If China is excluded from the calculation, remittances are the largest source of external finance in low and middle-income countries, exceeding the value of foreign direct investment and official development aid.
USD and Rouble affect remittances
The growth in remittances is evidence of migrants helping their families back home in troubled financial times, boosted by the reopening of businesses in host nations that had been forced to close by the Covid-19 pandemic, according to the World Bank.
While inflation has eaten into the value of migrants’ earnings in some countries, the strengthening of some currencies – notably the US dollar and Russian Rouble – increased the value of the money some were able to send home.
Future growth in remittances depends on the economic health of high-income nations.
The strength of the Rouble – prompted by Moscow’s insistence that 80 per cent of all Russian companies’ foreign earnings must be converted into the currency, as well as by surging oil prices – has boosted the value of remittances from Russia to countries in Central Asia and the Southern Caucasus.
Conversely, the weaker euro reduced the value of dollar-denominated payments from migrants in European countries. However the official figures may not tell the full story, according to both the World Bank and the International Monetary Fund.
Unofficial transfer routes
The true value of remittances may be up to 50 per cent higher than the official figures suggest because people often prefer to use informal methods to send money that are not recorded by the authorities, the IMF says.
The World Bank’s analysis of the 2022 figures says that officially recorded remittance volumes have declined in countries that suffer from a shortage of foreign exchange and have multiple exchange rates, as people use alternative routes offering better exchange rates.
The cost of sending a $200 remittance to a low or middle-income country through officially approved routes averaged 6 per cent of the total in the second quarter of 2022, it says. This was double the level set out in the United Nations’ Sustainable Development Goals.
South Asia had the lowest transfer charges, averaging 4.1 per cent while Sub-Saharan Africa had the highest at 7.8 per cent.
Compliance costs around anti-money laundering also deterred migrants from using digital money transfer systems, the World Bank said.
Future growth in remittances depends on the economic health of high-income nations, the Bank says. It predicts that the growth rate will slow to 2 per cent in 2023, and says there are substantial risks to this vital flow of money from the rich world to less well-off nations.
In particular, the Bank highlights the risks from a further escalation of the war in Ukraine, oil price and exchange rate volatility, and the possibility of a deeper-than-expected recession in the developed world.