Remittances are a key economic stabilizer

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About the Author: David Malpass is President of the World Bank Group.

At a time when the world faces an extremely difficult outlook, remittances are a vital lifeline for households in developing countries, especially the poorest. Remittances are mainly money that migrants send home to support their families. They alleviate poverty, improve nutritional outcomes, and are associated with increased birth weight and higher school enrollment rates for children from poor households. Studies show that remittances help recipient households build resilience, for example by financing better housing and recovering from disaster losses.

At the macroeconomic level, remittances have a countercyclical effect, reducing growth volatility and helping countries adjust to political shocks. At the microeconomic level, remittances enable poor households to improve children’s health and educational outcomes, increase their savings, and spend more on durable consumer goods and human capital. Remittances must therefore be welcomed, encouraged and facilitated.

The flow of dollar remittances continues to grow in the face of economic headwinds, although below inflation in the latest data. In 2022, remittance flows to low- and middle-income countries are expected to reach $626 billion, up from $597 billion in 2021, exceeding the flow of foreign direct investment and exceeding official aid by three times. Development. The actual size of remittances, including unrecorded flows through informal channels, is even larger. In sub-Saharan Africa, remittances are estimated to have increased by 5.3% in 2022 thanks to a growth of 16.4% in 2021.

The main recipient countries of remittances are, as expected, large countries such as China, Egypt, India, Mexico, Nigeria and the Philippines. As a percentage of gross domestic product, the main beneficiaries are smaller and poorer countries facing economic hardship and fragility: Lebanon (38% of GDP), Samoa (34%), Tajikistan (32%) and Tonga ( 50%). At the height of the Covid-19 pandemic, remittances were impacted by lockdowns and travel bans, but only briefly.

The resilience of remittances during the pandemic, and in previous episodes of financial crises and natural disasters, owes above all to the determination of migrants who send money home to help families in need. Digital technologies provide much faster and cheaper remittance services, and the onset of the pandemic has seen a surge in the use of digital channels for remittances. Yet digital channels account for less than 1% of total transaction volume, which is still dominated by remittances. New service providers face restricted access to correspondent banks due to the cost of compliance for anti-money laundering and anti-terrorism activities. Once the Covid-19 crisis began, the World Bank urged that remittance services be recognized as essential and called for more efforts to increase financial inclusion of the poor and improve access to services banking correspondents for new money transfer companies.

The global community and the G20 have recognized the importance of increasing the volume of remittances and reducing their costs. Global goals include a target to reduce remittance costs to 3% by 2030. Currently, the average cost of sending money to most African countries is more than double that level. Increasing competition in remittance markets, improving access to bank accounts, and avoiding exclusive partnerships between remittance companies and national post offices can reduce remittance costs. Remittances through official channels can be encouraged by prudent macroeconomic policies that avoid the practice of multiple exchange rates in receiving countries.

The Covid-19 pandemic and the war in Ukraine have further underscored the need for frequent and timely data. The World Bank, under the auspices of the Global Knowledge Partnership on Migration and Development, or KNOMAD, and in collaboration with 45 countries, has launched RemitStat, an international working group to improve data on remittance flows .

We are committed to increasing remittances for the millions of poor people and communities around the world. They can prove essential in supporting economies at a time when they are needed most.

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