According to the World Bank’s Migration and Development Brief, remittances to low- and middle-income countries reached a record high in 2018. The growth is set to continue until the end of 2019, when remittance flows to these countries are expected to reach $550 billion, becoming their largest source of external financing.
Record remittance flows in 2018
The World Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached $529 billion in 2018, an increase of 9.6 percent over the previous record high of $483 billion in 2017. Global remittances, which include flows to high-income countries, reached $689 billion in 2018, up from $633 billion in 2017. Regionally, growth in remittance inflows ranged from 7 percent in East Asia and the Pacific to 12 percent in South Asia. The overall increase was driven by a stronger economy and employment situation in the United States and a rebound in outward flows from some GCC countries and the Russian Federation. Excluding China, remittances to low- and middle-income countries ($462 billion) were significantly larger than foreign direct investment flows in 2018 ($344 billion).
India, China and Mexico lead the way
If we take a look at how countries stack up, the top remittance recipients were India with $79 billion, followed by China ($67 billion), Mexico ($36 billion), the Philippines ($34 billion), and Egypt ($29 billion). As per the World Bank’s Remittance Prices Worldwide database, the global average cost of sending $200 remained high, at around 7 percent in the first quarter of 2019. Remittance costs across many African corridors and small islands in the Pacific remain above 10 percent. Banks were the most expensive remittance channels, charging an average fee of 11 percent in the first quarter of 2019. Post offices were the next most expensive, at over 7 percent. Remittance fees tend to include a premium where national post offices have an exclusive partnership with a money transfer operator.
On track to lower remittance costs
Speaking about this, Dilip Ratha, lead author of the Brief and head of KNOMAD, stated: “Remittances are on track to become the largest source of external financing in developing countries. The high costs of money transfers reduce the benefits of migration. Renegotiating exclusive partnerships and letting new players operate through national post offices, banks, and telecommunications companies will increase competition and lower remittance prices.” The Brief also reports progress toward the target of reducing the recruitment costs paid by migrant workers, which tend to be high, especially for lower-skilled migrants. “Millions of low-skilled migrant workers are vulnerable to recruitment malpractices, including exorbitant recruitment costs. We need to boost efforts to create jobs in developing countries and to monitor and reduce recruitment costs paid by these workers”, said Michal Rutkowski, Senior Director of the Social Protection and Jobs Global Practice at the World Bank.
Regional remittance trends
In 2018, remittances to the East Asia and Pacific region grew almost 7 percent to $143 billion, faster than the 5 percent growth in 2017. Remittances to the Philippines rose to $34 billion, but growth in remittances was slower due to a drop in private transfers from the GCC countries. Flows to Indonesia increased by 25 percent in 2018, after a muted performance in 2017.
After posting 22 percent growth in 2017, remittances to Europe and Central Asia grew an estimated 11 percent to $59 billion in 2018. Continued growth in economic activity increased outbound remittances from Poland, Russia, Spain, and the United States, major sources of remittances to the region. Smaller remittance-dependent countries in the region, such as the Kyrgyz Republic, Tajikistan, and Uzbekistan, benefited from the sustained rebound of economic activity in Russia. Ukraine, the region’s largest remittance recipient, received a new record of more than $14 billion in 2018, up about 19 percent over 2017. This surge in Ukraine also reflects a revised methodology for estimating incoming remittances, as well as growth in neighboring countries’ demand for migrant workers.
Remittances flows into Latin America and the Caribbean grew 10 percent to $88 billion in 2018, supported by the strong U.S. economy. Mexico continued to receive the most remittances in the region, posting about $36 billion in 2018, up 11 percent over the previous year. Colombia and Ecuador, which have migrants in Spain, posted 16 percent and 8 percent growth. Three other countries in the region posted double-digit growth: Guatemala (13 percent), Dominican Republic and Honduras (both 10 percent), reflecting robust outbound remittances from the United States.
Remittances to the Middle East and North Africa grew 9 percent to $62 billion in 2018. The growth was driven by Egypt’s rapid remittance growth of 17 percent. Beyond 2018, the growth of remittances to the region is expected to continue, albeit at a slower pace of around 3 percent in 2019 due to moderating growth in the Euro Area.
Remittances to South Asia grew 12 percent to $131 billion in 2018, outpacing the 6 percent growth in 2017. The upsurge was driven by stronger economic conditions in the United States and a pick-up in oil prices, which had a positive impact on outward remittances from some GCC countries. Remittances grew by more than 14 percent in India, where a flooding disaster in Kerala likely boosted the financial help that migrants sent to families. In Pakistan, remittance growth was moderate (7 percent), due to significant declines in inflows from Saudi Arabia, its largest remittance source. In Bangladesh, remittances showed a brisk uptick in 2018 (15 percent).
Remittances to Sub-Saharan Africa grew almost 10 percent to $46 billion in 2018, supported by strong economic conditions in high-income economies. Looking at remittances as a share of GDP, Comoros has the largest share, followed by Gambia, Lesotho, Cabo Verde, Liberia, Zimbabwe, Senegal, Togo, Ghana, and Nigeria.
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