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World Bank Lowers Remittances Forecast for 2009 as Financial Crisis Deepens

March 24, 2009

  • Remittances will fall to $290 billion in 2009, from last year's high of $305 billion.
  • Even with the drop, remittances will outstrip private capital flows and official development aid.
  • Remittances are "resilient" because many migrants are unlikely to leave their adopted countries and will continue to send money home.

March 24, 2009—Unemployment in Calfa, Moldova, is high. The few jobs available pay little, and government pensions are as low as $10 dollars a month. The money that flows back from those who left, most often for Russia or Italy, is a lifesaver.

“If those working abroad came back, our living standards would drop below the poverty level,” says Calfa Mayor Ludmila Ceaglic.

Like Moldova, many developing countries depend heavily on the money millions of workers send home from abroad.

Yet migrant workers are facing more difficult circumstances—job losses, anti-migrant sentiment, even violence—as the financial crisis deepens around the world.

World Bank researchers predict remittances will fall more than originally expected this year—from $305 billion last year to an amount closer to $290 billion in 2009.

Even with a drop of between 5 and 8 percent, remittances will still outstrip private capital flows, expected to fall by half in 2009, and official development aid, typically around $100 billion.

Stock of Migrants Will Keep Remittances Resilient

Remittance flows will stay “resilient” because many countries have a well-established “stock” of migrants who are unlikely to leave their adopted countries. They will continue to send money home, even if they have to reduce the amount they send, says economist Dilip Ratha, who leads the World Bank’s Migration and Remittances team.

Although newspapers are reporting a large number of migrants returning home, migrant workers are still moving to destination countries, although at a slower pace. They, too, will add to the flow of remittances, says Ratha.

A new study by Centre for Cities finds that migrant workers from Eastern Europe are mostly staying put in the United Kingdom even as unemployment rises.

And Ratha has heard that many Tajik migrants don’t want to leave Russia despite incidents such as the attack and beheading of a young Tajik migrant worker near Moscow in December. A Russian nationalist group calling for an end to immigration claimed responsibility.

"Anecdotes are coming out that despite the violence against migrants, despite the very serious heightening of anti-immigration sentiments in Russia, especially against the Tajik migrants, there are reports that the migrants don’t want to come back. They want to stay on where they are. They find that back in Tajikistan the situation is even worse," says Ratha.

Workers’ Earnings Declining

Ratha’s team predicts remittances will amount to about 1.8 percent of GDP for developing countries in 2009, a slight drop from 1.9 percent of GDP in 2008.

However, considering that officially recorded remittances registered double-digit annual growth in the past few years, the expected fall will cause hardships in many poor countries, says the Bank’s revised Migration and Development Brief.

Remittances flowing to developing countries from Russia, South Africa, Malaysia and India are “especially vulnerable to the rolling economic crisis,” says the brief.

Remittances decelerated sharply in the second half of 2008, with the steepest drop expected for Europe and Central Asia.

Countries such as Tajikistan, Moldova and Kyrgyz Republic with large numbers of workers in Russia will see remittances declining as a share of GDP “by much higher numbers,” says Ratha.

One reason for the overall decline is migrant workers’ salaries are expected to fall more steeply than those of native born workers. In preparing the remittance forecasts, the team has assumed that migrant workers’ salaries would fall by an additional 5 percentage points compared to the decline in the salaries of native born workers. The decline is assumed to be even larger in Russia, Malaysia, and the Gulf countries, says Ratha.

Official Statistics Don’t Tell the Full Story

Ratha says employment of foreign-born workers in the United States is holding steady in wholesale and retail and going up in the restaurant and hotel sector, though their employment in construction has fallen faster than that of native born workers, based on new US Bureau of Labor Statistics data.

But the official statistics perhaps don’t tell the full story, he adds.

“Migrant workers are more flexible. They are cheaper. They work harder and they don’t insist on all the right employment conditions. They don’t ask for too much. And I think there is an additional reason –a lot of workers that have dropped out of the payroll officially continue working off the books."

“I suspect a lot of construction workers, undocumented workers and unskilled workers have lost their documentation status and are still staying. So employers would find them easier to employ also because of tax reasons.”

Tapping the Potential of Remittances

Ratha has urged developing countries to tap the wealth of their overseas diasporas by issuing diaspora bonds. In Africa, for instance, such bonds could help countries dependent on limited official development assistance.

Countries should also make it easier and cheaper for migrants to send remittances home, he says.

Currently, the average cost of sending money through official channels is over 10 percent of the value of the transaction. In some places, the cost rises to 25 to 30 percent.

A World Bank Group online remittances database tracks the costs of such transactions.

“At this time of crisis, we want countries to have more resources, and remittances are a great way to help countries because remittances flow directly to the people and are very well targeted to the needs of the people,” says Ratha.

Top 5 Recipients of Remittances in 2008:

India: $45 billion
China: $34 billion
Mexico: $26 billion
Philippines: $18 billion
Poland: $11 billion