This return to growth is more robust than earlier estimates and follows the resilience of flows in 2020 when remittances declined by only 1.7% despite a severe global recession due to COVID-19, according to estimates from the World Bank’s Migration and Development Brief released on the 17th of November.
This isn’t the first-time remittances stats are rising against projected tides. Early this year, the World Bank’s Migration and Development Brief 34 Phase II entitled: “COVID-19 Crisis Through a Migration Lens” published on Thursday 13th of May, indicated that, remittance flows declined by 12.5% for Sub-Saharan Africa falling a little below the Banks’s prediction in October 2020 when the bank estimated that, remittance flow will shrink 14% by 2021.
The World Bank’s earlier predictions on remittances and FDI
Remittance flows to low and middle-income countries (LMICs) were projected to fall by 7% ($508 billion in 2020), followed by a further decline of 7.5%, ($470 billion) in 2021. This decline, the bank indicated will be related to weak economic growth and employment levels in migrant-hosting countries, weak oil prices; and depreciation of the currencies of remittance-source countries against the US dollar.
Surprisingly, the May report indicated that the decline rate projected was not reached and in fact, remittances did not decline as much as Foreign Direct investments (FDI) flows to LMICs, which, fell by over 30% in 2020. According to Dilip Ratha, Lead Economist, Migration and Remittances and Head of the Global Knowledge Partnership on Migration and Development (KNOMAD).
Current performance in Sub-Saharan Africa and other regions
Remittance inflows to Sub-Saharan Africa returned to growth in 2021, increasing by 6.2 percent to $45 billion. Nigeria, the region’s largest recipient, is experiencing a moderate rebound in remittance flows, in part due to the increasing influence of policies intended to channel inflows through the banking system. Countries where the value of remittance inflows as a share of GDP is significant include the Gambia (33.8 percent), Lesotho (23.5 percent), Cabo Verde (15.6 percent) and Comoros (12.3 percent). In 2022, remittance inflows are projected to grow by 5.5 percent due to continued economic recovery in Europe and the United States.
Remittances and strong growth in other regions
Flows increased by 21.6 percent in Latin America and the Caribbean, 9.7 percent in Middle East and North Africa, 8 percent in South Asia, 6.2 percent in Sub-Saharan Africa, and 5.3 percent in Europe and Central Asia. In East Asia and the Pacific, remittances fell by 4 percent – though excluding China, remittances registered a gain of 1.4 percent in the region. In Latin America and the Caribbean, growth was exceptionally strong due to economic recovery in the United States and additional factors, including migrants’ responses to natural disasters in their countries of origin and remittances sent from home countries to migrants in transit.
“Remittance flows from migrants have greatly complemented government cash transfer programs to support families suffering economic hardships during the COVID-19 crisis. Facilitating the flow of remittances to provide relief to strained household budgets should be a key component of government policies to support a global recovery from the pandemic,” said Michal Rutkowski, World Bank Global Director for Social Protection and Jobs.
Factors contributing to the strong growth in remittance are migrants’ determination to support their families in times of need, aided by economic recovery in Europe and the United States which in turn was supported by the fiscal stimulus and employment support programs. In the Gulf Cooperation Council (GCC) countries and Russia, the recovery of outward remittances was also facilitated by stronger oil prices and the resulting pickup in economic activity.
The cost of sending $200 across international borders continued to be too high, averaging 6.4 percent of the amount transferred in the first quarter of 2021, according to the World Bank’s Remittance Prices Worldwide Database. This is more than double the Sustainable Development Goal target of 3 percent by 2030. It is most expensive to send money to Sub-Saharan Africa (8 percent) and lowest in South Asia (4.6 percent). Data reveal that costs tend to be higher when remittances are sent through banks than through digital channels or through money transmitters offering cash-to-cash services.
“The immediate impact of the crisis on remittance flows was very deep. The surprising pace of recovery is welcome news. To keep remittances flowing, especially through digital channels, providing access to bank accounts for migrants and remittance service providers remains a key requirement. Policy responses also must continue to be inclusive of migrants especially in the areas of access to vaccines and protection from underpayment,” said Dilip Ratha, lead author of the Brief and head of KNOMAD.
Remittances are projected to continue to grow by 2.6 percent in 2022 in line with global macroeconomic forecasts. A resurgence of COVID-19 cases and reimposition of mobility restrictions poses the biggest downside risk to the outlook for global growth, employment and remittance flows to developing countries. The rollback of fiscal stimulus and employment-support programs, as economies recover, may also dampen remittance flows.