Published on December 19, 2023 at 12:00 p.m
Despite the associated transaction costs, remittances from migrants to their countries of origin remain one of the most important external sources of financing for poor countries. This is again suggested by the World Bank, which this year predicts that these transfers to low- and middle-income countries will reach a record $669 billion.
Flows continued to increase in 2023 (3.8%), but to a lesser extent following sharp increases in 2021-2022. In 2024, the multilateral institution predicts another increase of 3.1%, which would bring remittances to $690 billion.
The momentum still to be seen this year is linked to the increase in the number of new permanent immigrants in 2022. In the countries of the Organization for Economic Co-operation and Development (OECD), their number increased by 26% last year. Migration flows towards OECD countries remained strong at the start of 2023, driven by a recovery in employment, particularly in the United States, where the employment rate of foreign-born people rose. exceeded that of people born in the country. The number of asylum seekers and irregular border crossings in Europe also appears to have increased in 2023, the bank said.
The United States in pole position
The United States remains the main source of remittances. They are followed by Saudi Arabia. Compared to the country's GDP, Saudi Arabia records a significantly higher volume than the United States. However, despite the increase in the employment of foreign workers in Saudi Arabia and given the ongoing mega projects in the country, remittances to the countries of origin of migrants fell by 13% in the first half of 2023 compared to the previous year.
“This decline likely reflects post-Covid adjustments as well as Saudi Arabia's recent policy allowing foreign migrant workers to bring their families into the country when they work, which could lead to a decline in remittances to home countries,” explains the World Bank. He added that this trend could lead to a decline in remittances to Pakistan and most countries in North Africa.
Decline in Russian flows
The war in Ukraine and Western sanctions against Russia continue to change the situation for foreign remittances. After rising 15.5% and 18.5% in 2021 and 2022, respectively, remittances to Europe and Central Asia are expected to decline by 1.4% to around $78 billion in 2023.
This poor performance is linked to the slowdown in flows from Russia to neighboring countries. Armenia, Azerbaijan, Georgia, the Kyrgyz Republic and Uzbekistan are particularly affected. Some countries in the region are restricting remittances from Russia for fear of additional sanctions. The decline in the number of migrants arriving in Russia by around 20% in the first half of 2023 and the devaluation of the Russian ruble against the dollar have also reduced the volume of remittances from Russia.
High costs
Separately, remittances from migrant workers are expected to exceed foreign direct investment (FDI) in their home countries by around $250 billion this year. “Remittance flows to developing countries have exceeded foreign direct investment and official development assistance in recent years, and the gap is widening,” said Dilip Ratha, an economist at the World Bank.
The fact that the fees associated with these transfers are still high does not represent a brake on the flow. On average, these costs amounted to 6.2% in the second quarter of 2023, more than double the sustainable target set for 2030 Development (SDG) of 3%. It is more expensive to send funds to sub-Saharan Africa (7.9%). South Asia (4.3%). Only two countries of origin of the funds – South Korea and Saudi Arabia – have met the G20 countries' goal of reducing these costs to 5%.