Remittances To Decline

Remittance flows to developing countries are expected to be $304 billion in 2009, down from an estimated $328 billion in 2008, the World Bank has said, releasing a new migration and remittances brief to coincide with an International Diaspora and Development Conference which run on July 13-14. The predicted decline in remittances by 7.3 per cent this year is far smaller than that for private flows to developing countries.

According to the World Bank, remittances were relatively resilient because, while new migration flows had declined, the number of migrants living overseas had been relatively unaffected by the crisis. However, sources of risk to the outlook include uncertainty about the depth and duration of the current crisis, unpredictable movements in exchange rates, and the possibility that immigration controls may be tightened further in major destination countries.

"There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. Such restrictions will curb remittances more than forecast and will slow the global recovery in the same way as protectionism against trade would endanger a global upturn,” explained Hans Timmer, Director of the World Bank’s Development Prospects Group.

Remittances have slowed in many corridors since the last quarter of 2008. In line with a recent downward revision in the World Bank’s forecast of global economic growth, the new update (2009-2011) highlights the impact of the present financial crisis on the remittance flows and describes broad regional and country specific trends. Remittance flows to Latin America have been falling in large part because of a slowdown in the US construction sector.

The new forecasts show a negative 6.9 per cent decline in remittances for the Latin America and Caribbean region. Sub-Saharan Africa is also likely to experience a negative 8.3 per cent slowdown in its remittance flows. However, flows to South Asia and East Asia have been strong; but remittances are expected to decline somewhat in 2009.

India, China and Mexico retain their position as the top recipients of migrant remittances among developing countries. Smaller economies such as Tajikistan, Moldova, Tonga, Lesotho, and Guyana are the top recipients in terms of the share of remittances in GDP, which exceeded a quarter of their GDP.

"Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of seven or ten per cent can pose significant hardships to the people and to governments, especially those facing external financing gaps.

Reducing remittance fees and developing innovative tools to leverage remittances for financial inclusion and capital market access should be a part of our response to the financial crisis,” said Dilip Ratha, Lead Economist in the Development Prospects Group of the World Bank.