WASHINGTON, Dec. 18, 2023 — Remittances to low- and middle-income countries (LMICs) grew an estimated 3.8% in 2023, a moderation from the high gains of the previous two years. Of concern is the risk of decline in real income for migrants in 2024 in the face of global inflation and low growth prospects, according to the World Bank’s latest Migration and Development Brief released today.
In 2023, remittance flows to LMICs are estimated to have reached $669 billion as resilient labor markets in advanced economies and Gulf Cooperation Council (GCC) countries continue supporting migrants’ ability to send money home.
By region, remittance inflows grew for Latin America and the Caribbean (8%), South Asia (7.2%), East Asia and the Pacific (3%), and Sub-Saharan Africa (1.9%). Flows to the Middle East and North Africa fell for the second year, declining by 5.3% mainly due to a sharp drop in flows to Egypt. Remittances to Europe and Central Asia also fell by 1.4% after gaining more than 18% in 2022.
The United States continued to be the largest source of remittances. The top five remittance recipient countries in 2023 are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion). Economies where remittance inflows represent substantial shares of gross domestic product (GDP) – highlighting the importance of remittances for funding current account and fiscal shortfalls – are Tajikistan (48%), Tonga (41%), Samoa (32%), Lebanon (28%), and Nicaragua (27%).
Based on the trajectory of weaker global economic activity, growth of remittances to LMICs is expected to soften further to 3.1% in 2024. Driving the moderated forecast are a slowing economic growth and the prospect of weaker job markets in several high-income countries. Additional downside risks include volatile oil prices and currency exchange rates, and a deeper-than-expected economic downturn in high-income countries.
“During crises, migrants have weathered risks and shown resilience to support families back home. But high inflation and subdued global growth is affecting how much money they can send,” said Iffath Sharif, Global Director of the Social Protection and Jobs Global Practice at the World Bank. “Labor markets and social protection policies in host countries should be inclusive of migrants, whose remittances serve as a vital lifeline for developing countries.”
According to the Bank’s Remittances Prices Worldwide Database, remittance costs remain persistently high, costing 6.2% on average to send $200 as of the second quarter of 2023. Compared to a year ago, sending money to all regions was more expensive, with the Middle East and North Africa being the exception. Banks continue to be the costliest channel for sending remittances (with an average cost of 12.1%), followed by post offices (7%), money transfer operators (5.3%), and mobile operators (4.1%).
“Remittances are one of the few sources of private external finance that are expected to continue to grow in the coming decade. They must be leveraged for private capital mobilization to support development finance, especially via diaspora bonds,” said Dilip Ratha, lead economist and lead author of the report. “Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing.”
A special section of the Brief describes 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 diaspora savings. However, unlike diaspora bonds, such savings tend to be short-term and volatile. Future inflows of remittances can be used as collateral to lower the costs of international borrowings by developing countries. Due to their large size relative to other sources of foreign exchange, counter-cyclical nature and indirect contribution to public finances, remittances can also help improve a country’s sovereign ratings and its ability to repay debt.
