The World Bank is a custodian for Sustainable Development Goal (SDG) indicators related to human migration. Two of these goals are increasing the volume of remittances as a percentage of GDP, and reducing remittance costs.
As part of a systematic global effort toward achieving these goals the World Bank monitors progress and periodically publishes reports called Migration and Development Briefs. The most recent brief confirms the forecasts made in the previous report, and gives us some projections for the future. Let’s take a quick look at what these numbers can tell us.
The total volume of international remittances in 2018 added up to $689 billion. The estimated figure for 2019 stands at $714 billion. The World Bank projects that in 2023 worldwide remittances will further grow to exceed $746 billion.
The following will come as no surprise to those who have been following global remittance trends. The top remittance recipient countries in 2018 were India (at $78.6 billion) and China (at $67.4 billion). Mexico and The Philippines placed third and fourth respectively, with inflows of $35.7 billion and $33.8 billion.
In terms of sending remittances, the US ranked #1 by a wide margin, with outflows of $68 billion in 2018. The UAE, Saudi Arabia and Switzerland placed second, third and fourth respectively. These rankings have not changed significantly in years, and are not projected to change in the near future.
Cost of remittances
The cost of sending remittances has not seen much improvement for several quarters. The World Bank’s Remittance Prices Worldwide Database measured the average cost of global remittances to be approximately 7%. This figure is disappointingly high, considering the vast majority of remittances flow to low and middle-income countries (LMICs).
Nimble money transfer operators (MTOs) such as Ria Money Transfer often prove to be the most cost-effective remittance channels, with costs even lower than the SDG targets. The April 2019 brief mentioned that banks are consistently the most expensive operators for sending remittances, with the average cost being as high as 10.9% of the remittance value.
This is shocking, considering the United Nations’ SDG is to bring remittance costs down to 3%. Banks also displayed a shortsighted tendency of avoiding, rather than addressing the risks related to adopting more efficient money transfer methods.
Displacement of human populations
The United Nations High Commissioner for Refugees (UNHCR) reported in 2018 that the worldwide population of refugees had inflated to more than 20 million. The proportion of undocumented migrants increased fivefold in seven years.
Large scale deportations and rejection of asylum applications in the millions were reported in parts of Europe and Asia. These trends erode the acceptance of migrants in developed economies, undermine even planned migration, and can result in long term adverse impacts on worldwide remittances.
Remittances in the long term
The World Bank reports that the rate of economic growth in many developed nations is declining. As a result, the projection for the growth of remittances flowing from these countries will also decline. Remittances to low and middle-income countries grew by 8.8% in 2017 and by 9.6% in 2018. Due to declining economic growth projections for 2019 and 2023 are both under 5%.
However, there is much positive news to share as well. Remittances have recently overtaken other forms of capital inflows. FDIs to LMICs have been on a decline for many years, while remittances have been rising steadily. The result is that remittances now exceed FDIs to constitute the largest source of forex in many LMICs. Moreover, the volumes and growth rates of remittances to many LMICs have proved to be much steadier and more predictable over a 20-year period since 1990, as compared with other capital flows.
The importance of remittances for LMICs and for the world as a whole is abundantly clear. The focus for the coming years should, therefore, be to make remittances more efficient and to reduce the costs of sending money across borders.
The World Bank suggests that more partnerships between MTOs, telecom companies, national banks and post offices can help significantly reduce the cost of remittances in the developing world. This would open the domain to more players, promote competition, create more options for remittance senders, and drive remittance costs down as a simple function of macroeconomic principles at work.