## Resilient Remittances

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### Importance and scale
- Global remittances reached a record $647 billion in 2022—three times official development assistance.
- Many remittances are sent through informal channels and are therefore not fully captured by official statistics.
- Country-level examples of remittance importance:
  - India became the first country to receive more than $100 billion in annual remittances in 2022.
  - Remittances are worth more than one-fifth of GDP in Tajikistan, Lebanon, Nepal, Honduras, The Gambia, and a dozen other countries.
  - “Egypt’s remittance receipts are greater than revenue from the Suez Canal.” “Sri Lanka’s exceed tea exports; Morocco’s are larger than tourism earnings.”

### Stability and role in crises
- At times of crisis, remittances provide a financial lifeline; migrant workers often increase transfers after natural disasters so relatives can buy food or pay for shelter.
- During the early stages of COVID, in 2020, remittances fell by just 1.1 percent—in a year when global income shrank by 3 percent.
- Remittances recovered strongly and grew by almost 20 percent in 2021–22.
- Migrant workers played pivotal pandemic roles as highly skilled doctors and nurses and as frontline delivery workers.
- Stranded migrants in transit countries have received increased remittance flows, benefiting host economies (examples: Mexico, Guatemala, Morocco, Tunisia, Türkiye).

### Source and destination patterns
- The United States is the largest source country for remittances, especially for Latin America and the Caribbean.
- The Gulf Cooperation Council countries are the second-largest source in US dollar terms and the largest when remittances are measured as a share of their GDP.
  - The proportion of foreign workers in the Gulf often exceeds 70 percent of the population.
  - Saudi Arabia and the United Arab Emirates are large sources for South Asia, North Africa, and Southeast Asia.
  - Policy shifts in the Gulf—fewer foreign recruits and diversified recruitment targeting Africa and Central Asia—could shift remittance growth from the region.
- Russia is another large source; after the 2022 invasion of Ukraine, remittances to Central Asia rose sharply due to a spike in oil prices and a stronger ruble when expressed in dollars.

### Costs and barriers
- Average cost: customers must pay $12.50 in costs whenever they send $200 to a low- or middle-income country—representing 6.3 percent of the transaction.
- This is more than double the target set under the United Nations Sustainable Development Goals.
- Africa is the most expensive region for money transfers, with remittance costs reaching 8 percent.
- Example of extreme costs: it can cost more than $70 to send $200 from Tanzania to Uganda—an eye-popping 35 percent of the transaction.
- Making remittance costs just 5 percentage points cheaper would cut costs globally by nearly $30 billion a year.
- Cost drivers include multiple currency conversions, exchange controls, lack of interoperable payment systems, and partnership contracts between money transfer operators and national banks/post offices.
- “De-risking” by banks—closing correspondent accounts of money transmitters for fear of regulatory breaches—has reduced formal channels, especially affecting fragile economies such as Somalia.

### Digital channels, regulation, and market structure
- Digital wallets accessed via smartphones are the cheapest way to send money.
- Digital remittances have grown rapidly since the onset of COVID-19, but most transfers still involve cash at one or both ends.
- The remittance market is described as oligopolistic, with a small number of providers exercising control through exclusive networks.
- Cumbersome anti–money-laundering and counter–terrorism-financing regulations treat every remittance transaction with suspicion, stifling competition and access.
- A risk-based approach that reduces regulatory requirements for small sums (under $200, say) could unlock cross-border digital remittances.
- Where regulations have freed fintechs to use modern technology, the cost of sending remittances has fallen sharply.

### Potential benefits, financial deepening, and examples
- With better regulation and lower costs, remittances can improve financial inclusion and broaden access to banking, saving, loan, and insurance products.
- Remittances can improve debt sustainability and sovereign credit ratings, enabling countries greater access to international bond markets; future remittance revenue can be used as borrowing collateral.
  - Example outcomes:
    - Commercial banks in Brazil raised over $1 billion at low interest rates in 2002 through bonds backed by future remittances from Japan.
    - Nigeria raised $300 million via diaspora bonds in 2017.
    - India has tapped its large diaspora for almost $10 billion.
- Governments attempting to tax remittances would face enforcement challenges and risk driving people away from formal channels; improving the domestic business environment is a preferred policy to encourage investment of remittance income.
- In countries with foreign-exchange scarcity and parallel market premiums, measures to increase formal flows include currency devaluation, higher interest rates on foreign currency deposits (and making such deposits repatriable), and elimination of surrender requirements.

### Outlook and drivers of future growth
- Structural drivers point to continued remittance growth:
  - More than a billion people, most of them in Africa and South Asia, are expected to join the working-age population by 2050.
  - Populations are aging in many advanced economies, increasing demand for migrant workers.
  - Climate change and extreme weather will add to migration pressures.
- As the number of migrants increases and cross-border payments become cheaper and simpler, remittances will continue to provide stable income to millions and play a vital part in the global economy.

*Dilip Ratha, “Resilient Remittances,” F&D, September 2023.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/september/b2b-0923.pdf_