Remittance flow To LMICs Expected To Increase

Remittance flow To LMICs Expected To Increase

When the world is reeling under financial crisis, remittance flows to low- and middle income countries (LMICs) are expected to increase by 4.2 percent this year to reach 630 billion dollars, according to the World Bank’s latest Migration and Development Brief released today.

Remittances to Ukraine, which is the largest recipient in Europe and Central Asia, are expected to rise by over 20 percent in 2022. However, remittance flows to many Central Asian countries, for which the main source is Russia, will likely fall dramatically, the World Bank said. These declines, combined with rising food, fertilizer, and oil prices, are likely to increase risks to food security and exacerbate poverty in many of these countries, it added.

“The Russian invasion of Ukraine has triggered large-scale humanitarian, migration and refugee crises and risks for a global economy that is still dealing with the impact of the COVID pandemic,” said Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank. “Boosting social protection programs to protect the most vulnerable, including Ukrainians and families in Central Asia, as well as those affected by the war’s economic impact, is a key priority to protect people from the threats of food insecurity and rising poverty:

STRONG GAINS

The World Bank report said that remittance inflows in 2021 saw strong gains in Latin America and the Caribbean (25.3 percent), Sub-Saharan Africa (14.1 percent), Europe and Central Asia (7.8 percent), the Middle East and North Africa (7.6 percent), and South Asia (6.9 percent). However, remittances to East Asia and the Pacific fell by 3.3 percent; although excluding China, remittances grew 2.5 percent. Excluding China, remittance flows have been the largest source of external finance for LMICs since 2015.

TOP FIVE RECIPIENTS

India, Mexico (replacing China), China, the Philippines, and Egypt are the top five recipient countries in 2021. The countries where remittance inflows stand at very high shares of GDP are Lebanon (54 percent), Tonga (44 percent), Tajikistan (34 percent), Kyrgyz Republic (33 percent), and Samoa (32 percent).

“On the one hand, the Ukraine crisis has shifted global policy attention away from other developing regions and from economic migration. On the other hand, it has strengthened the case for supporting destination communities that are experiencing a large influx of migrants,” said Dilip Ratha, lead author of the report on migration and remittances and head of KNOMAD. “As the global community prepares to gather at the International Migration Review Forum, the creation of a Concessional Financing Facility for Migration to support destination communities should be seriously considered. This facility could also provide financial support to origin communities experiencing return migration during the COVID-19 crisis.”

COSTS OF SENDING MONEY

The average cost of sending $200 was 6 percent in the fourth quarter of 2021, double the SDG target of 3 percent, according to the Bank’s Remittances Prices Worldwide Database. It is cheapest to send money to South Asia (4.3 percent) and most expensive to send to Sub-Saharan Africa (7.8 percent). The costs of sending money to Ukraine are high (7.1 percent from Czech Republic, 6.5 percent from Germany, 5.9 percent from Poland, and 5.2 percent from USA). The war in Ukraine has also affected the international payment systems with implications for cross-border remittance flows. The exclusion of Russia from SWIFT has added a national security dimension to participation in international payments systems.

“Lowering remittance fees by 2 percentage points would potentially translate to S/2 billion of annual savings for international migrants from LMICs, and $400 million for migrants and refugees from Ukraine,” added Ratha. “The cross-border payment systems, however, are likely to become multipolar and less interoperable, slowing progress on reducing remittance fees.

INTERNATIONAL WORKING GROUP TO IMPROVE DATA ON REMITTANCES

The World Bank, under the auspices of KNOMAD and in collaboration with countries where remittances provide a financial lifeline, launched an International Working Group to Improve Data on Remittance Flows in April. Having improved data on remittances can directly support the Sustainable Development Goal indicators on reducing remittance costs and help increase the volume of remittances. This will also support the first Objective of the Global Compact on Migration, to improve data.

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