The remittances story
Present circumstances:
- The World Bank, it claims, just published an analysis titled Migration and Development Brief.
- Slower growth in OECD economies, particularly in the high-tech industry in the United States, is anticipated to have an impact on this year’s flow of remittances since it may result in less of a demand for information technology (IT) workers.
- Remittances from India, which rose by more than 24% in 2022 to a record-high of $111 billion, are expected to grow by just 0.2% in 2023.
- Due to strong labour market conditions, wage increases in high-income destination economies, and higher energy prices in the GCC countries—a major destination for less-skilled migrants—the World Bank increased the amount of remittances in its previous update of the Migration and Development Brief in November last year, to $111 billion.
- The Organisation for Economic Co-operation and Development (OECD) is made up of 38 democratic, wealthy countries.
- A decline in the need for immigrants in the Gulf Cooperation Council (GCC) nations, a group of six Arab countries located near the Arabian Gulf where declining oil prices have hindered growth, is another important factor.
Why is a slower remittance growth forecast for 2023?
- The report projects that remittances to India, which account for more than 60% of inflows into South Asia, will grow by just 0.2% in 2023.
- Remittance flows to the other six South Asian countries would be hampered by the demand for migrants in the GCC nations, where it is predicted that dropping oil prices will limit growth from 5.3% in 2022 to 3% in 2023.
- Latin America and the Caribbean are anticipated to see the largest increase in remittances (3.3% forecast) as a result of the ongoing strength of the US labour market.
- South Asia is expected to have the lowest rate of remittance growth (0.3%) because of the big base in 2022 and the diminishing demand for highly skilled IT personnel in the US and Europe.
- Due to the GCC countries’ decreased demand for migrants, precarious balance-of-payments situations, and permissive exchange controls, remittances are also predicted to be transferred through illegal money transfer channels in Pakistan, Bangladesh, and Sri Lanka.
The main sources of remittances to India are as follows:
- The US, UK, and Singapore are three high-income nations from which about 36% of India’s remittances come. These immigrants are highly skilled and primarily work in high technology.
- The post-pandemic rebound in some places sparked labour market competition, and salary rises raised remittances.
- Even in India’s other high-income regions, the economy was booming. Due to their high energy prices and low food price inflation, the GCC countries, which continue to be the leading destination for less skilled South Asian migrants, had positive spillover effects for all countries.
As stated in the report:
- While rising energy prices boosted employment and incomes of the less-skilled Indian migrants in the GCC countries, the GCC governments made explicit efforts to halt the inflation of food prices.
- Remittance inflows from the GCC countries, which presently account for over 28% of all inflows to India, consequently saw a considerable increase in 2022.
What will happen to remittances to other regions in the future?
- Remittance inflows to low- and middle-income countries (LMICs) are forecast to fall to 1.4% in 2023 and reach $656 billion.
- Estimates show that inflows to LMICs increased by 8% to $647 billion in 2022. Global remittance flows are projected to reach $840 billion in 2023.
- Remittances are anticipated to decrease in 2023 as a result of a number of economic factors that increased them in 2022 in the East Asia and Pacific region host countries of the migrants.
- To combat inflation, central banks employ strict monetary policies.
- With historically high debt levels, the capacity of the government to absorb shocks is limited.
- The ongoing uncertainty brought on by Russia’s invasion of Ukraine is anticipated to restrain economic growth in high-income countries.
- Reduced demand for immigrants in the GCC countries in 2023 will further diminish remittance flows to East Asia and the Pacific Islands, despite some relief from inflationary pressures, which will make the current global slowdown worse.
- This unfavourable trend will be partially offset by China’s recent opening up following the Covid-19 pandemic, but the global slowdown will also have an effect on demand for manufactured goods, which will have consequences for East Asian migrants working in Thailand, Malaysia, and China’s export factories.
- Remittance growth in Europe and Central Asia is expected to fall to 1% due to a large base effect, persistent weakness in flows to Ukraine and Russia, and a weaker Russian ruble relative to the US dollar. Remittances to Egypt are expected to rise, so a decline in oil prices may help remittances in the Middle East and North Africa to partially recover.
What was the 2022 remittance trend?
- The World Bank had previously predicted that inward remittances from India would total $100 billion in 2022, but they actually reached $111 billion after rising by more than 24%.
- 63% of the remittances to South Asia, which climbed by more than 12% in 2022 to reach $176 billion, were made up of this.
- The top five receiving countries for remittances in 2022 were India ($111 billion), Mexico ($61 billion), China ($51 billion), the Philippines ($38 billion), and Pakistan ($30 billion).
What makes remittances such a necessity?
- Remittances accounted for about 326 percent of foreign direct investment (FDI) inflows and 1,036 percent of official development aid (ODA) inflows in 2022, compared to 935% in 2019.
- Remittances are also a terrific addition to government cash aid and are essential for homes in times of need.
- Following the Covid-19 outbreak, remittances are viewed as an important source of foreign exchange for several countries, particularly those in South Asia.
- In many economies throughout the planet, remittances have become a source of income that will likely continue to be so in the near future.
