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Remittance Flows Continue to Grow in 2023 Albeit at Slower Pace

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After reaching record numbers in the last two years, remittances grew at a slower pace in 2023. The latest Migration and Development Brief reports that remittances to low- and middle-income countries (LMICs) slowed to 3.8 percent in 2023 after averaging about 9 percent in 2021 and 2022.  While the flows are estimated to have reached $669 billion this year, risk of decline in real income for migrants remains a concern in the face of global inflation and low growth prospects.

The growth of remittances in 2023 was particularly high in Latin America and the Caribbean (8 percent) because of a historically low rate of unemployment in the United States, and in South Asia (7.2 percent), largely due to a continued increase in remittances to India . Remittances’ growth in 2023 was more moderate in East Asia and the Pacific (3.0 percent), although excluding China growth was 7 percent, and in Sub-Saharan Africa (1.9 percent), the same rate of increase as Nigeria, the region’s largest recipient of remittances. After the huge, likely one-time money transfers from the Russian Federation to Europe and Central Asia in 2022, remittances to that region declined by 1.4 percent in 2023; the flows in the region were impacted by movement of oil prices and in particular, a weakening of the ruble against the US dollar. Remittances fell by 5.3 percent in the Middle East and North Africa, in part because large differences between the official and parallel exchange rate in some countries encouraged the diversion of flows to unofficial channels. 

In 2024, remittance flows to LMICs is expected to slow to 2.4 percent mostly reflecting a slowing of economic growth in several high-income countries.  The risks to this forecast are tilted to the downside, given the potential for a further deterioration in the war in Ukraine and the conflict in the Middle East, increased volatility in oil prices and currency exchange rates, and a deeper-than-expected economic downturn in major high-income countries. 

The cost of sending remittances to developing regions remained high in the second quarter of 2023, at 6.2 percent—more than twice the Sustainable Development Goal target of 3 percent by 2030. Average costs remained the highest in Sub-Saharan Africa (7.9 percent) and the lowest in South Asia (4.3 percent). Only two of the G20 (Group of Twenty) countries (the Republic of Korea and Saudi Arabia) met the G20 goal of reducing remittance costs to 5 percent. 

Despite the crises and uncertainties, remittances have emerged as the premier source of finance for LMICs, exceeding the more volatile foreign direct investment flows in 2023 by more than $250 billion. A special section in the brief is dedicated to describe how diaspora finances can be mobilized for development and strengthening a country’s debt position. Diaspora bonds can be structured to directly tap diaspora savings held in foreign destinations. Many countries provide for nonresident deposits to attract foreign-currency-denominated diaspora savings. Such deposits can be large. For example, India has had a nonresident deposit program for the past few decades, with total deposits equaling $143 billion in September 2023. However, unlike diaspora bonds, such savings tend to be short term and volatile, and are therefore not appropriate tools for financing long-term development projects.

Future inflows of remittances can be used as collateral to lower the costs of international borrowing for national banks in developing countries. Remittances also can play an important role in improving a country’s ability to repay debt, due to their large size relative to other sources of foreign exchange, countercyclical nature, and indirect contribution to public finances  (e.g., by increasing revenues from consumption taxes, as well as seigniorage revenues as remittances are deposited in the banking system). The contribution of remittances to debt sustainability in low-income countries was recognized in the 2017 revision to the International Monetary Fund/World Bank debt sustainability analysis framework. This change was associated with a significant improvement in the evaluation of debt sustainability in some countries with large remittance inflows. Similarly, econometric results show that the inclusion of remittances in the denominator of the debt-to-export ratio in middle-income countries with large remittance receipts would improve the sovereign rating by one notch.



Dilip Ratha

Lead Economist and Economic Adviser to the Vice President of Operations, Multilateral Investment Guarantee Agency, World Bank

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