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Outlook for remittance flows to developing countries: Recovery after the global financial crisis but risks lie ahead

Dilip Ratha's picture

 (Available in French and Spanish)

 

We have just released our latest outlook for remittance flows. Officially recorded remittance flows to developing countries are estimated to increase by 6 percent to $325 billion in 2010. This marks a healthy recovery from a 5.5 percent decline registered in 2009. In line with the World Bank’s outlook for the global economy, remittance flows to developing countries are expected to increase by 6.2 percent in 2011 and 8.1 percent in 2012, to reach $374 billion by 2012. (Note that the World Bank’s definition of developing countries has changed: Poland, which is estimated to have received $9.1 billion in 2010, is no longer a classified as a developing country.)

This outlook for remittance flows, however, is subject to three key risks:

  • First, the economic recovery in the major destination countries in North America and Europe is not very firm yet. There is a risk that the fiscal retrenchment being planned or implemented in some of the major destination countries might restrain aggregate demand and economic growth, and contribute to high unemployment rates, which in turn could reduce the migrants’ incomes and remittances.
     
  • Second, movements in currency exchange rates and commodity prices can pose unpredictable risks for remittance flows. While a weaker US dollar can imply larger dollar-denominated remittances from Europe, it can also increase dollar prices of assets and goods in remittance-receiving countries (such as India, Mexico and the Philippines).
     
  •  Finally, there is a risk that immigration controls imposed in response to high domestic unemployment rates will deepen and adversely affect migration and remittance flows. In general, protectionist policies that slow the movement of goods and people across borders are likely to delay an adjustment to the crisis and prolong the process of recovery. Such policies are also inconsistent with the sharp increase in demand for migrants projected in the rapidly aging societies of the North.

 

From a medium-term view, some major trends (in addition to the above) are apparent. The implementation of the Wall Street reforms and the EU Payment Services Directive will increase competition, transparency, and consumer protection in remittance markets and reduce remittance costs.  The application of mobile phone technology has been successful for domestic remittances in several developing countries in Africa and Asia, but lack of clarity on anti-money-laundering and combating the financing of terror (AML-CFT) regulations remains a major barrier to the entry of cross-border remittance service providers. Also it has become urgent now to address whether these new technologies should be regulated under Banking regulations or telecom regulations, and how the operational risks that might arise can be addressed. Finally, the resilience of remittances has made developing countries more aware of the potential for leveraging remittances and diaspora wealth for raising development finance. Several countries (including most recently Greece) have implemented or are considering the issuance of diaspora bonds and/or securitization of future remittance flows to raise lower-cost and longer-term financing for infrastructure and public works projects. 

We have separately released the Migration and Remittances Factbook 2011 which provides a comprehensive picture of emigration, skilled emigration, immigration, and remittance flows for 210 countries and 15 country groups.
 

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Related Links:
Press Release: Remittances to developing countries resilient in the recent crisis
Video: Dilip Ratha on Migration and Remittances Factbok 2011
Website: Migration and Remittances

 

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