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Sustained Growth in Remittances

Context:

Remittances to India are set to touch a record $100 billion in 2022, according to the World Bank’s latest Migration and Development Brief titled, ‘Remittances Brave Global Headwinds’. India received $89.4 billion in 2021 — this is the first time a country will reach the $100 billion mark.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

  1. What are remittances?
  2. World Bank’s Migration and Development Brief
  3. What has been the general trend in remittances this year?
  4. Reasons behind the sustained growth in remittances
  5. What does the report say about future trends?

What are remittances?

  • A remittance is a payment of money that is transferred to another party.
  • Broadly speaking, any payment of an invoice or a bill can be called a remittance. However, the term is most often used nowadays to describe a sum of money sent by someone working abroad to his or her family back home.
  • Remittances represent one of the largest sources of income for people in low-income and developing nations, often exceeding direct investment and international development assistance.
  • In the case of India, the largest sources of remittances have been from Indians working in the Gulf Cooperation Council (GCC) countries (UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait), and the U.S./U.K.

World Bank’s Migration and Development Brief

  • The World Bank’s Migration and Development Brief is prepared by the Migration and Remittances Unit, Development Economics (DEC)- the premier research and data arm of the World Bank.
  • The brief aims to provide an update on key developments in the area of migration and remittance flows and related policies over the past six months.
  • It also provides medium-term projections of remittance flows to developing countries.
  • The brief is produced twice a year.

What has been the general trend in remittances this year?

  • World remittances are expected to touch $794 billion in 2022, up from $781 billion in 2021. This represents a growth of 4.9%, compared to 10.2% in 2021, which was the highest since 2010.
  • Of the $794 billion, $626 billion went to low- and middle-income countries (LMICs). Remittances represent an even larger source of external finance for LMICs in 2022, compared to foreign direct investment (FDI), official development assistance (ODA), and portfolio investment flows.
  • The top five recipient countries this year are expected to be India ($100 billion), followed by Mexico ($60 billion), China ($50 billion), the Philippines ($38 billion) and Egypt ($32 billion).

Reasons behind the sustained growth in remittances

  • According to the World Bank, one of the main reasons is the gradual reopening of various sectors in host-country economies, following pandemic-induced closures and travel disruptions.
  • This “improved migrant workers’ incomes and employment situations and thereby their ability to send money home.”
  • An allied reason was the “migrants’ determination to help their families back home” during the tough post-pandemic recovery phase.
  • The report notes that the 10.2% growth in remittances achieved in 2021, that too against the backdrop of the pandemic, owed a lot to the stimulus measures enacted “to underpin faltering high-income economies”, especially in the U.S. and Europe, which helped to support employment levels and maintain or increase incomes of migrant workers, enabling them to send money home.

What does the report say about future trends?

  • The report predicts that growth in remittances will fall to 2% in 2023 as the GDP growth in high-income countries continues to slow, eroding migrants’ wage gains.
  • For South Asia as a whole, the growth in remittances is expected to fall from 3.5% in 2022 to 0.7% in 2023.
  • In the U.S., higher inflation combined with a slowdown will limit remittance flows, while the GCC countries will also see cooling of remittance outflows following a slowdown.
  • The demand for labour is expected to soften as construction activities for the FIFA World Cup in Qatar have ended.
  • Nonetheless, remittances to India are forecast to grow by 4% next year, “supported by the large share of Indian migrants earning relatively high salaries in the U.S., the U.K. and East Asia”.
    • Their salaries, the report notes, “may be more resilient than those of lower-wage migrants, for example in the GCC”.

-Source: The Hindu


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