Amid a backdrop of weak global growth, remittances to developing countries are expected to increase only slightly in 2016, says the World Bank’s latest paper on Migration and Development.

Remittances to low and middle income countries are expected to increase 0.8 percent to $442 billion. The modest recovery this year is largely driven by increases in remittances sent to Latin America and the Caribbean. In contrast, other regions seeing a decline in the earnings sent home by migrants. This follows a decline in the level of remittances recorded in 2015.

Low oil prices continued to be a factor in reduced remittance flows from Russia and the Gulf Cooperation Council (GCC) countries. In addition, structural factors have also played a role in dampening remittances growth. Anti-money laundering efforts have prompted banks to close down accounts of money transfer operators, diverting activity to informal channels. Policies favoring employment of nationals over migrant workers have discouraged demand for migrant workers in the GCC countries. Also, exchange controls in countries from Nigeria to Venezuela have disrupted the flow of remittances.

The global growth of remittances to developing countries is projected to remain modest at about 3.5 percent over the next two years. Developing regions other than Latin America and the Caribbean are projected to have growth of 2 percent or lower.

The global average cost of sending $200 remained at 7.6 percent in the second quarter of 2016. Average costs have dropped from 9.8 percent in 2008. The highest-cost region to send money to continues to be Sub-Saharan Africa at 9.6 percent while it is the least costly to send remittances to the South Asia region.

“Remittances continue to be an important component of the global economy, surpassing international aid. However this “new normal” of weak growth in remittances could present challenges for millions of families that rely heavily on these flows. This, in turn, can seriously impact the economies of many countries around the world bringing on a new set of challenges to economic growth,” said Augusto Lopez-Claros, Director of the World Bank’s Global Indicators Group.

The World Bank paper on “Migration and Development: A Role for the World Bank Group” provides an overview of the fundamental drivers of migration and the associated economic benefits and challenges. The paper also outlines a role for the World Bank Group and International Financial Institutions (IFIs) to take on in this area, thus complementing the New York Declaration on Refugees and Migrants agreed on at the United Nations (UN) Summit on Refugees and Migrants held on September 19, 2016. IFIs can contribute to the global migration agenda in four areas: i) financing migration programs; ii) addressing the fundamental drivers of migration; iii) maximizing the benefits and managing the risks of migration in sending and receiving countries; and iv) providing knowledge for informed policy making and improving public perceptions.

The paper notes that there are about 250 million international migrants and almost three times as many internal migrants. Out of these, there are 21.3 million refugees (including 5.2 million Palestinian refugees). Although the number of refugees has increased considerably recently, it has not reached the historically high levels seen in the early 1990s. Intra-regional migration is substantial and South-South migration outpaces South-North migration. Inequality, demographics and climate change continue to be the main drivers of economic migration.

“Migration is overwhelmingly beneficial but there are some costs that bias public perceptions towards the negative. As the global community prepares to define a global compact on migration by 2018, game-changing ideas are needed to harness the benefits and mitigate the risks associated with migration. Viewing migration through a common lens of reducing poverty and boosting prosperity can provide a unifying framework for a comprehensive response,” said Dilip Ratha, a lead author of the paper and head of the Global Knowledge Partnership on Migration and Development (KNOMAD). 

Regional Remittance Trends

East Asia and the Pacific: The outlook for remittance flows for the region has worsened due to weak global economic prospects and de-risking, leading to decrease in growth of remittances to 2.1 percent in 2016 compared to 4.1 percent in 2015. The Philippines is likely to see the slowest remittance expansion in the past decade, to 2.2 percent, reflecting a decline in overseas worker deployments. Remittance inflows to Vietnam’s southern hub, Ho Chi Min City, increased by 4 percent during the first seven months of 2016. Pacific Island countries have seen some pick-up of remittance inflows due to strong migrant outflows to Australia, New Zealand, and the U.S.

Europe and Central Asia: Remittances to the region are estimated to fall further, by another 4.0 percent in 2016 after a drastic 22.5 percent decrease in 2015, due to the depreciation of the Ruble against the U.S. dollar and a weak economy in Russia.  Most hard hit are Turkmenistan, Uzbekistan and Tajikistan. Countries where the growth of remittances is expected to be positive in 2016 include Bulgaria (3.9 percent), Montenegro (3.8 percent), Bosnia and Herzegovina (3.3 percent), Serbia (2.9 percent), Macedonia (2.8 percent), Romania (2.7 percent), Turkey (1.6 percent), Kosovo (1.5 percent) and Albania (0.9 percent).

Latin America and the Caribbean: Remittances flows to the region increased during the first eight months of 2016. Two factors are responsible for this: i) Recovery of the US economy, which is in its seventh year of expansion, and ii) a slight recovery in Spain in the second quarter of 2016. Remittances are expected to grow by 6.3 percent and reach $72 billion by the end of 2016. From January to August 2016, the year-on-year growth rates in remittance inflows were: Mexico 6.6 percent, El Salvador 6 percent, Honduras 6.4 percent, and Guatemala 15 percent. In Colombia, remittances from the US increased by 12 percent and from Spain by 19 percent during the first half of 2016.

Middle East and North Africa: Remittances to the region are expected to increase by 1.5 percent in 2016 due to a low-base effect given the 5.7 percent decline in 2015. However, it is expected that remittances from the GCC countries would decline. Egypt, Jordan and Yemen, large recipients of remittances, would be impacted the most. In Egypt, the largest remittance recipient in the region, remittance flows through the formal channels are impacted by further depreciation of the Egyptian Pound and emergence of a black market exchange rate premium.

South Asian Region: Remittances to the region are expected to decline by 2.3 percent in 2016, following a 1.6 percent decline in 2015. Remittances from the GCC countries continued to decline due to lower oil prices and labor market ‘nationalization’ policies in Saudi Arabia. In 2016, remittance flows are expected to decline by 5 percent in India and 3.5 percent in Bangladesh, whereas they are expected to grow by 5.1 percent in Pakistan and 1.6 percent in Sri Lanka.

Sub-Saharan Africa: Remittance flows to the region are projected to decline by 0.5 percent in 2016, compared to the 0.8 percent decline of 2015. Faced with weak earnings from commodity exports and other balance of payments difficulties, many countries in the region – Angola, Nigeria, and Sudan, for example – have imposed exchange controls. Nigeria, which accounts for two-thirds of the regions’ remittance inflows, is projected to register a decline of 2.2 percent in 2016 following a 1.8 percent decline in 2015. A significant parallel market exchange rate premium – in September 2016, the market rate was around 450 Nairas/$ compared to the official rate of around 320 – has dampened flows through the official channels. Flows to Nigeria, Somalia and other countries in the region are also impacted by a disruption to the services of many money transfer operators due to de-risking behavior by international correspondent banks.

UN Summit on Large Movements of Refugees and Migrants

The year 2016 marks an important turning point in global migration governance: the United Nations General Assembly (UNGA) hosted a summit meeting, on September 19, to address large movements of refugees and migrants, and welcomed the International Organization for Migration (IOM) to become a UN-related organization. The New York Declaration on Refugees and Migrants proposes two global compacts: A Comprehensive Refugee Response Framework and a Global Compact for Safe, Orderly, and Regular Migration. Negotiations on both compacts are expected to continue through 2017, with final adoption expected in 2018.

The multi-faceted nature of migration will require partnerships with other UN organizations, multilateral development banks, civil society, and the private sector. Viewing migration through the lens of reducing poverty and sharing prosperity while respecting human rights can provide a unifying framework for operationalizing the Bank Group’s knowledge on migration and mobilizing its financial resources and convening power.

Also, on September 20 2016, the United States hosted a Leaders’ Summit on Refugees. The outcome of this Summit include: i) an increase of funding to humanitarian appeals and international organizations by approximately $4.5 billion over 2015 levels; ii) almost doubled the number of refugees through resettlement or other legal pathways in 2016; and iii) access to education for one million refugee children globally and access to lawful work for one million refugees globally. President Obama also announced the launch of the World Bank’s new Global Concessional Financing Facility.