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Global remittances bounce back after COVID – World Bank

5 July 20220 comments

Global remittance flows, or money sent home by emigrants living overseas, are expected to increase by 4.2 percent this year to reach $US630 billion, according to a new report from the World Bank.

This follows an almost record recovery of 8.6 percent in 2021 which came after a dramatic fall due to the COVID-19 pandemic, the bank’s latest Migration and Development Brief says.

Remittances to Ukraine, which is the largest recipient in Europe and Central Asia, are expected to rise by over 20 percent in 2022. But remittance flows to many Central Asian countries, for which the main source is Russia, will likely fall dramatically.

These declines, combined with rising food, fertiliser, and oil prices, are likely to increase risks to food security and worsen poverty levels in many low and middle income countries.

“The Russian invasion of Ukraine has triggered large-scale humanitarian, migration and refugee crises and risks for a global economy that is still dealing with the impact of the COVID pandemic,” World Bank report author Michal Rutkowski said.

“Boosting social protection programs to protect the most vulnerable, including Ukrainians and families in Central Asia, as well as those affected by the war’s economic impact, is a key priority to protect people from the threats of food insecurity and rising poverty,” he said

During 2021, remittance inflows saw strong gains in Latin America and the Caribbean (25.3 per cent), Sub-Saharan Africa (14.1 per cent), Europe and Central Asia (7.8 per cent), the Middle East and North Africa (7.6 per cent), and South Asia (6.9 per cent).

Remittances to East Asia and the Pacific fell by 3.3 per cent; although excluding China, remittances grew 2.5 per cent. Excluding China, remittance flows have been the largest source of external finance for LMICs since 2015.

The top five recipient countries for remittances in 2021 were India, Mexico (replacing China), China, the Philippines, and Egypt. Among economies where remittance inflows stand at very high shares of GDP are Lebanon (54 per cent), Tonga (44 per cent), Tajikistan (34 per cent), Kyrgyz Republic (33 per cent), and Samoa (32 per cent).

“On the one hand, the Ukraine crisis has shifted global policy attention away from other developing regions and from economic migration. On the other hand, it has strengthened the case for supporting destination communities that are experiencing a large influx of migrants,” the report said.

“As the global community prepares to gather at the International Migration Review Forum, the creation of a Concessional Financing Facility for Migration to support destination communities should be seriously considered. This facility could also provide financial support to origin communities experiencing return migration during the COVID-19 crisis.”

Globally, the average cost of sending $US200 was six per cent in the fourth quarter of 2021, double the SDG target of three per cent, according to the Bank’s Remittances Prices Worldwide Database. It is cheapest to send money to South Asia (4.3 per cent) and most expensive to send to Sub-Saharan Africa (7.8 per cent).

The costs of sending money to Ukraine are high (7.1 per cent from Czech Republic, 6.5 per cent from Germany, 5.9 per cent from Poland, and 5.2 per cent from USA).

The report says global goodwill towards refugees and migrants from Ukraine opens an opportunity to develop and pilot programs to facilitate their access to jobs and social services in host countries, apply simplified anti-money laundering and counter-terrorist financing procedures for small remittance transactions to help reduce remittance costs and mobilize diaspora bond financing.

It says the war in Ukraine has also affected the international payment systems with implications for cross-border remittance flows. The exclusion of Russia from SWIFT has added a national security dimension to participation in international payments systems.

“Lowering remittance fees by 2 percentage points would potentially translate to $US12 billion of annual savings for international migrants from LMICs, and $400 million for migrants and refugees from Ukraine,” the report said.

“The cross-border payment systems, however, are likely to become multipolar and less interoperable, slowing progress on reducing remittance fees.”

In April, the World Bank, under the auspices of KNOMAD and in collaboration with countries where remittances provide a financial lifeline, launched an International Working Group to Improve Data on Remittance Flows. This comes in the wake of the COVID-19 pandemic and the war in Ukraine.

“Having improved data on remittances can directly support the Sustainable Development Goal indicators on reducing remittance costs and help increase the volume of remittances. This will also support the first Objective of the Global Compact on Migration, to improve data,” the report says.

Meanwhile, in Afghanistan, with the financial system collapsing, remittances sent by Afghans abroad are more important than ever.

Worldwide, there are 5.85 million Afghans living outside their home country and their remittances serve as lifelines to their families and financial system.

One in ten families are reported to be reliant on remittances to make ends meet.

But as multiple catastrophes unfold in the country simultaneously, remittances too are in a parlous state. 

Afghans face a financial squeeze after the Taliban’s lightning-fast takeover of the country. The US froze $US7 billion in reserves and the International Monetary Fund (IMF) shut off financing to the country, including hundreds of millions of dollars in Special Drawing Rights, which can be converted into currency during times of crisis.

Despite the resumption of banking in Afghanistan in late August, Afghanistan’s Central Bank can only access a fraction of its usual financing and remittances have fallen by about 11 per cent since the Taliban takeover.