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According to a report prepared by the Migration and Remittances Team in the World Bank, officially recorded remittances to India in by its diaspora in 2013 was about USD 70 billion—the largest of such remittances in the world. Overall, remittances to developing countries are estimated at USD 404 billion in 2013, up 3.5 percent compared with 2012. Growth in remittance flows to developing countries is expected to accelerate to an annual average of 8.4 percent over the next three years, raising flows to USD 436 billion in 2014 and USD 516 billion in 2016.
India remains the largest recipient of officially recorded remittances in the world, and received about USD70 billion in remittances in 2013. Other large recipients include China (USD60 billion), the Philippines (USD25 billion), Mexico (USD22 billion), Nigeria (USD21 billion), and Egypt (USD17 billion) (figure 3). Revised estimates suggest that remittances as a share of GDP were 52 percent in Tajikistan, 31 percent in the Kyrgyz Republic, and 25 percent in both Nepal and Moldova. Remittances to many smaller developing countries tend to be equivalent to a larger share of their respective GDP.
Remittances in 2013 to India were equivalent to 15 percent of exports, and covered 12 percent of imports. Comparisons with key foreign exchange earners are similarly striking. In 2013, remittances to India exceeded earnings from IT services, and inflows to Egypt were larger than earnings from the Suez Canal. During the same year, remittances to Bangladesh were equivalent to 84 percent of garment exports, and inflows to Nigeria amounted to about 22 percent of receipts from petroleum exports.
Growth in remittances to the South Asia region (SAR) has slowed, rising by 2.3 percent in 2013 compared with the very rapid increases of the previous three years. This was driven by a modest increase in India of only 1.7 percent in 2013, and a decline in Bangladesh of -2.4 percent. The depreciation of the Indian rupee during 2013 appears to have attracted inflows through a surge in the deposits of non-resident Indians rather than remittances. In Bangladesh, the fall in remittances stems from a combination of factors, including fewer migrants finding jobs in the GCC countries, more migrants returning from GCC countries due to difficulties in resolving legal status, and the appreciation of the Bangladeshi taka against the US dollar. Still, some rebound is projected in the coming years, and remittances continue to play an important role in underpinning the balance of payments. Pakistan continued to register robust growth in remittances – its dependence on remittances, which are now nearly three times the level of international reserves, remains high.
Nigeria is currently in the process of implementing a diaspora bond.10 In the past, India and Israel have successfully issued diaspora bonds to raise external financing. Ethiopia, Kenya, Nepal and the Philippines have also experimented with some forms of diaspora bonds with varying success. A key requirement for issuing diaspora bonds is registration at the US SEC, which has discouraged many interested countries from issuing such bonds. Another key requirement is gauging the diaspora’s trust in the government’s ability to invest the funds appropriately.
South Asia
Remittance flows to the South Asia Region are estimated at USD111 billion in 2013. Growth in remittances to the region has slowed, due to modest growth in India and a fall in Bangladesh. Still, remittance inflows are critical to underpinning the balance of payments in many countries of the region. The Pakistan Remittance Initiative, which was launched in 2009, remains a central part of the government’s efforts to encourage inflows from the Pakistani diaspora, while Nepal is exercising greater prudence in managing liquidity generated by the current growth in remittances. The price of making remittances is falling, but faster progress in the Europe and Central Asia region mean that South Asia is now the second lowest cost destination for remittances.
Growth in remittances to the South Asia Region (SAR) is projected to moderate to 2.3 percent in 2013, after averaging 14.1 percent in 2011 and 2012. Remittances to India increased by only 1.7 percent to reach USD70 billion in 2013, as the impetus from the depreciation of the Indian rupee during much of 2013 appears to have attracted inflows mainly for investment purposes, as indicated by the surge in non-resident Indian deposits (figure 21). In Bangladesh, the third largest recipient of remittances in the region, inflows decreased by 2.4 percent, largely due to the combined dampening effect of fewer migrants finding jobs overseas (lowering net migration), the appreciation of the Bangladeshi taka, and difficulties in resolving the status of migrant workers in the Gulf Cooperation Council (GCC) countries. Growth in remittance flows to Nepal and Sri Lanka, which were equivalent to 25 percent and 10 percent of GDP, respectively, was more robust. Remittances to Pakistan grew rapidly in the second half of 2013, and continue to provide essential support to the balance of payments, and they were equivalent to 284 percent of international reserves in 2013 (figure 22).
The outlook for remittances in SAR is strong, and growth is projected to accelerate to an annual average of over 7 percent in 2014-2016. Remittances remain the largest source of external resource flows in SAR, greatly exceeding foreign aid and substantially more stable than FDI and private flows (figure 23).
Remittance costs slightly lower
The total average cost of making remittances in SAR fell to 6.6 percent in the first quarter of 2014, from 7.2 percent a year earlier. Larger corridors, like the Saudi Arabia to India, UAE to India, and the US to Pakistan, attract more remittance service providers and are typically more competitive, leading to some of the lowest remittance costs in the world (figure 24). The adoption of improved technology, such as cell-phone services that enable remittances, as well as the implementation of targeted government policies aimed at facilitating remittances, like the Pakistan Remittance Initiative, are helping exert downward pressure on the costs of making remittances to the region, and the trend is likely to continue.
Rising anti-immigrant sentiment in many developed destination countries, as evident from deportation of migrants, is a growing concern. Saudi Arabia deported more than 370,000 migrants in the 5 months since November 2013, many of whom come from Ethiopia, Egypt and Yemen. In the US, over 368,000 people were deported in 2013 (mostly migrants seeking entry into the US and apprehended at the border), with Mexico and Central American countries the main places of origin.
The average total cost of sending remittances fell in the first quarter of 2014, dipping below 8.4 percent (simple average of country-specific corridors), compared with over 9.0 percent a year earlier. The dollar-value weighted average dropped a full percentage point to 5.9 percent at the end of 2013, from 6.9 percent the previous year, confirming the importance of remittance volume and competition to maintaining downward pressure on fees. The average cost of remittances to Sub-Saharan Africa has remained stubbornly high around 12 percent. Also South-South remittances are either not permitted or very costly due to outward capital controls in many developing countries.
Efforts are underway to mobilize diaspora savings for development purposes, including through diaspora bonds. Migrants living in high-income countries hold savings in excess of USD500 billion, and several countries, such as Nigeria, are readying diaspora bonds to tap into this large pool of funds.
With nearly 1 out of 7 persons in the world being either an international or an internal migrant, there is a growing awareness of the importance of migration in the post-2015 development agenda, especially the need for reducing migration costs (such as recruitment costs) and improving migrant rights. In addition, diaspora remittances and savings can be leveraged to boost financing for development. The UN High-Level Dialogue on migration and development concluded successfully in October 2013, with unanimous support for a declaration of an 8-point action plan.
The closure of bank accounts of money transfer operators serving Somalia and other fragile countries is a matter of concern. Remittances provide a lifeline to ‘fragile and conflict-affected’ countries where they are more than 5 times larger than foreign aid, FDI and other sources of international currency. Anti-money laundering and countering the financing of terror (AML/CFT) regulations have to be carefully balanced with the development objective of helping the poor.
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