Developing Countries: Remittance down for 2yrs in a row
Remittances to developing countries fell for a second consecutive year in 2016, a trend not seen in the last three decades, said the World Bank's Migration and Development Brief.
The latest edition of the note was released yesterday at the Bank's Spring Meetings in Washington.
It estimated that officially recorded remittances to developing countries amounted to $429b in 2016, a decline of 2.4 percent over $440b in 2015.
Global remittances, including flows to high-income countries, contracted by 1.2 percent to $575b last year from $582b in the previous year.
Remittances to major receiving countries, including Bangladesh, Nigeria, and Egypt, dropped last year by 11.1, 10 and 9.5 percent, respectively.
India, while retaining its top spot as the world's largest remittance recipient, led the decline with remittance inflows decreasing by 8.9 percent. Nepal also saw a contraction of 6.7 percent.
In many countries, including Bangladesh, remittances are one of the largest sources of foreign exchange. It is the largest source of foreign exchange in Bangladesh after exports and the figure was over seven times higher than the foreign direct investment worth $2b in 2015-16.
Last year, the exceptions among major remittance recipients were Mexico and the Philippines, who saw an increase in inflows by an estimated 8.8 and 4.9 percent, respectively. Also, Pakistan saw a modest growth of 2.8 percent last year.
The WB said low oil prices and weak economic growth and fiscal tightening in the Gulf Cooperation Council countries and the Russian Federation were taking a toll on remittance flows to South Asia and Central Asia. Besides, weak growth in Europe reduced flows to North Africa and Sub-Saharan Africa.
The decline in remittances, when valued in US dollars, was made worse by a weaker euro, British pound and Russian ruble against the US currency.
“Remittances are an important source of income for millions of families in developing countries. As such, a weakening of remittance flows can have a serious impact on the ability of families to get healthcare, education or proper nutrition,” said Rita Ramalho, acting director of the WB's Global Indicators Group.
In keeping with an improved global economic outlook, remittances to developing countries are expected to recover this year, growing by an estimated 3.3 percent to $444b in 2017.
The global average cost of sending $200 remained flat at 7.45 percent in the first quarter of 2017, although this was significantly higher than the Sustainable Development Goal (SDG) target of 3 percent. Sub-Saharan Africa, with an average cost of 9.8 percent, remained the highest-cost region.
A major barrier to reducing remittance costs was de-risking by international banks, when they close the bank accounts of money transfer operators, in order to cope with the high regulatory burden aimed at reducing money laundering and financial crime. This posed a major challenge to the provision and cost of remittance services to certain regions, said the WB.
According to the WB, several high-income countries that are host to many migrants are considering taxation of outward remittances, in part to raise revenue, and in part to discourage undocumented migrants. However, taxes on remittances are difficult to administer and likely to drive the flows underground.
On the global migration crisis, the WB said between 2015 and 2016, the number of refugees in the 28 European Union countries increased by 273,000 to 1.6 million. During the same period, the number of refugees worldwide increased by 1.4 million to 16.5 million.
In a special feature, the WB noted the absence of a formal definition of the Global Compact on Migration, and advanced a working definition of “an internationally negotiated framework for governments and international organisations to harness the benefits of migration while navigating its challenges.”
It called for regional and bilateral agreements on addressing migration to develop a normative framework or guidelines for governments and international organisations.
“Migration will almost certainly increase in the future due to large income gaps, widespread youth unemployment, ageing populations in many developed countries, climate change, fragility and conflict,” said Dilip Ratha, lead author of the report and head of the Global Knowledge Partnership on Migration and Development.
“Currently, the global migration architecture is fragmented and undefined. The global community needs to systematically map the current institutional framework, clarify the missions of key organisations, and develop normative guidelines by building on existing conventions that address migration,” he said.