Workers’ Remittances Fall Less Than Expected in 2009, But 2010 Recovery Likely To Be Shallow

November 18, 2009

  • Remittance flows to developing countries expected to fall less than expected in 2009, to $317 billion, down from $338 billion in 2008.
  • South Asia and East Asia fared better than expected, while remittances to Latin America and the Caribbean and the Middle East and North Africa were weaker.
  • Recovery of migration and remittance flows in 2010 and 2011 is likely to be shallow and to face significant risks in all regions.

November 18, 2009—Migrant workers have sent less money home during the economic crisis, but new data indicate remittances overall will decline less than expected in 2009, thanks mainly to a remittances “boom“ in South Asia and strong flows to East Asia and the Pacific.

New data indicate global remittances will fall to $317 billion in 2009, down from a higher-than-originally-predicted $338 billion in 2008. The expected 6.1 percent drop is smaller than the World Bank’s July prediction of 7.3 percent.

But the World Bank warns remittances may only have a shallow recovery in 2010 and 2011, especially if the economic recovery turns out to be jobless. And future remittances flows may be affected by additional factors such as tighter immigration controls and unpredictable exchange rate movements.

Even so, remittances will likely stay more resilient than other forms of income and become even more important as a source of development financing in many developing countries, says Dilip Ratha, lead economist and manager of the Migration and Remittances Team in the Development Prospects Group.

“The most important new finding that we have come to, after monitoring the flows for the last 12 months or so during the crisis, is that even during a crisis in the migrant destination countries, remittances tend to be resilient. They don’t fall as much as private capital flows,” says Ratha.

Asia Remittances Stronger Than Expected, But Latin America, Middle East Weaker

While fewer people left their home countries to find work abroad during the economic crisis, existing migrant workers mainly stayed put despite weaker job markets and tried to send money home by cutting living costs, Ratha says on his blog, People Move.

Remittance flows to South Asia so far in 2009 are “booming,” says Ratha. Remittances to Pakistan increased by 24 percent in the first eight months of 2009, while flows to Bangladesh and Nepal increased by 16 percent and 13 percent, respectively.

Flows to East Asia and the Pacific also exceeded expectations and the region could experience a surge in remittances in the last quarter of 2009, as migrants send money to help their families affected by typhoons Ondoy and Pepeng and the earthquake in the Pacific Islands, according to the November 3 Migration and Development Brief.

However, remittances dropped more than expected in Latin America and the Caribbean and the Middle East and North Africa. Flows to Mexico declined by 13.4 percent in the first nine months of 2009, but appear to have bottomed out. Egypt’s remittances fell by 20 percent, and Morocco experienced a similar rate of decline.

In Europe and Central Asia, flows to Armenia and Tajikistan declined by more than 30 percent in the first half of 2009. Poland and Romania also experienced a sharp slowdown in flows.

Remittances flows to Sub-Saharan Africa did better than forecasted, with flows to Nigeria, Kenya and Uganda showing higher growth or smaller declines than expected.

Growth Likely To Be ‘Almost Flat’ in 2010

Remittance flows are expected to remain “almost flat” in 2010, with a modest increase of 1.4 percent, and to grow by 3.9 percent in 2011, according to the new brief.

“With this sluggish pace of recovery, remittance flows are unlikely to reach the 2008 level even by 2011,”  the brief says.

The outlook could be more negative if the crisis lasts longer than expected and recovery is cut short in emerging sectors, such as construction.

Another risk is if weak job markets in the destination countries of migrant workers lead to further tightening of immigration controls. The brief notes that several European countries are considering measures that may reduce the inflows of new migrants.

And a third source of risk to the outlook is if exchange rate movements affect the value of remittances in workers’ home countries or make it less attractive to send money home.

Still, at over $300 billion a year, remittance flows provide an enormous source of development financing, offering a ray of hope in difficult times, says the brief.