Remittances set for 1.4% growth in 2023 amid economic softening, World Bank says

Poor and middle-income countries are expected to receive $656 billion this year

Remittances were supported by strong oil prices in GCC countries in 2022, which raised migrant incomes. Reuters

Remittance flows to poor and middle-income countries are expected to increase by 1.4 per cent to $656 billion in 2023 amid a slowdown in global economic conditions, the World Bank has said.

This comes as economic activity in remittance source countries is set to soften, limiting employment and wage gains for migrants, it said.

The Washington-based lender also revised upwards last year's growth in remittance flows to 8 per cent, or $647 billion, according to its new migration and development brief.

India was the top recipient country for remittances last year, receiving funds worth $111 billion, followed by Mexico at $61 billion, China at $51 billion, the Philippines at $38 billion and Pakistan at $30 billion, the lender said.

“Remittances are highly complementary to government cash transfers and essential to households during times of need,” said Michal Rutkowski, global director of the social protection and jobs global practice at the World Bank.

Three in four people in the Middle East who transfer money to loved ones back home expect their volume of remittances to increase over the next 12 months amid rising inflationary challenges for households, according to a March survey by Western Union.

Nearly three quarters of 30,600 consumers said they were transferring more money than in previous years because of economic challenges such as a higher cost of living around the world, while 79 per cent of receiving consumers said they intended to ask for more money, the poll found.

In the post-coronavirus period of slower economic growth and falling foreign direct investments, remittance inflows have become more important to countries and households, given their resilience as a source of external financing, particularly for poor and middle-income countries with high external debt, the latest World Bank report said.

During 2022, remittances were supported by strong oil prices in the GCC countries, which raised migrant incomes, and by large money transfers from Russia to countries in Central Asia and the strong US labour market.

Remittance inflows declined by 3.8 per cent to $64 billion for the Mena region after a growth of 12.2 per cent in 2021, according to the research.

“In 2023, remittance inflows are projected to grow by 1.7 per cent, with the outlook differentiated across regional sub-groups depending on dominant host countries and the degree of exposure to higher inflation and financial volatility,” according to the report.

Remittance flows to Europe and Central Asia grew 19 per cent to $79 billion last year, mainly due to record high money transfers from Russia to neighbouring countries.

In 2022, Ukraine remained the region’s largest recipient of remittances, receiving inflows of $17.1 billion, a decline of 5.4 per cent over 2021.

Remittance flows to South Asia grew by more than 12 per cent to $176 billion, benefitting from strong labour market conditions in Organisation for Economic Co-operation and Development (OECD) destination economies and high demand for migrants in GCC countries, the World Bank said.

Flows to India grew by 24 per cent to $111 billion. Other top global recipients in the region were Pakistan and Bangladesh, with remittance inflows of $30 billion and $22 billion, respectively.

In 2023, remittances to South Asia are projected to grow by 0.3 per cent due to slower growth in the OECD economies, especially in the high-tech sector in the US, which affects demand for IT workers, the lender said.

Meanwhile, remittance flows increased by 0.7 per cent in East Asia and the Pacific, by 11.3 per cent in Latin America and the Caribbean and by 6.1 per cent in sub-Saharan Africa.

Economies where remittance inflows account for a large share of gross domestic product include Tajikistan (51 per cent of GDP), Tonga (44 per cent), Lebanon (36 per cent), Samoa (34 per cent) and the Kyrgyz Republic (31 per cent).

The global average cost of sending $200 remained high, at 6.2 per cent, in the fourth quarter of 2022, up from 6 per cent a year ago and more than twice the Sustainable Development Goal target of 3 per cent, the World Bank said.

It is cheapest to send money via mobile operators at 4.5 per cent, but digital channels account for less than 1 per cent of total transaction volume.

Banks are the most expensive channel for sending remittances, with an average cost of 11.8 per cent, followed by post offices at 6.3 per cent and money transfer operators at 5.4 per cent, the World Bank said.