Remittance Flows Continue to Grow in 2023 Albeit at Slower Pace

In 2023, remittance flows to LMICs are estimated to have reached $669 billion as resilient labor markets in advanced economies and Gulf Cooperation Council (GCC) countries continue supporting migrants’ ability to send money home.

By region, remittance inflows grew for Latin America and the Caribbean (8%), South Asia (7.2%), East Asia and the Pacific (3%), and Sub-Saharan Africa (1.9%). Flows to the Middle East and North Africa fell for the second year, declining by 5.3% mainly due to a sharp drop in flows to Egypt. Remittances to Europe and Central Asia also fell by 1.4% after gaining more than 18% in 2022.

The United States continued to be the largest source of remittances. The top five remittance recipient countries in 2023 are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion). Economies where remittance inflows represent substantial shares of gross domestic product (GDP) – highlighting the importance of remittances for funding current account and fiscal shortfalls – are Tajikistan (48%), Tonga (41%), Samoa (32%), Lebanon (28%), and Nicaragua (27%).

Based on the trajectory of weaker global economic activity, growth of remittances to LMICs is expected to soften further to 3.1% in 2024. Driving the moderated forecast are a slowing economic growth and the prospect of weaker job markets in several high-income countries. Additional downside risks include volatile oil prices and currency exchange rates, and a deeper-than-expected economic downturn in high-income countries.

“During crises, migrants have weathered risks and shown resilience to support families back home. But high inflation and subdued global growth is affecting how much money they can send,” said Iffath Sharif, Global Director of the Social Protection and Jobs Global Practice at the World Bank. “Labor markets and social protection policies in host countries should be inclusive of migrants, whose remittances serve as a vital lifeline for developing countries.”

According to the Bank’s Remittances Prices Worldwide Database, remittance costs remain persistently high, costing 6.2% on average to send $200 as of the second quarter of 2023. Compared to a year ago, sending money to all regions was more expensive, with the Middle East and North Africa being the exception. Banks continue to be the costliest channel for sending remittances (with an average cost of 12.1%), followed by post offices (7%), money transfer operators (5.3%), and mobile operators (4.1%).

“Remittances are one of the few sources of private external finance that are expected to continue to grow in the coming decade. They must be leveraged for private capital mobilization to support development finance, especially via diaspora bonds,” said Dilip Ratha, lead economist and lead author of the report. “Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing.”

A special section of the Brief describes how diaspora finances can be mobilized for development and strengthening a country’s debt position. Diaspora bonds can be structured to directly tap diaspora savings held in foreign destinations. Many countries provide for nonresident deposits to attract diaspora savings. However, unlike diaspora bonds, such savings tend to be short-term and volatile. Future inflows of remittances can be used as collateral to lower the costs of international borrowings by developing countries. Due to their large size relative to other sources of foreign exchange, counter-cyclical nature and indirect contribution to public finances, remittances can also help improve a country’s sovereign ratings and its ability to repay debt.

Regional Remittance Trends

Remittances to East Asia and the Pacific increased by an estimated 3% to reach $133 billion in 2023. Excluding China, remittances to the region grew an estimated 7% to $83 billion in 2023, supported by the sustained growth in remittance flows to the Philippines, which has migrants in a well-diversified set of host destinations across the world. The average cost of sending $200 to the region was 5.9% in the second quarter of 2023. In 2024, remittance growth to the region is estimated to be 2.4%.

Remittance flows to Europe and Central Asia are estimated to have declined by 1.4% to $78 billion in 2023. The subdued growth in 2023 is due mainly to an unusually high base level posted in 2022, driven by huge amounts of money transfers from Russia, and a lingering weakness in flows to Russia and Ukraine. Depreciation of the Russian ruble against the U.S. dollar has also decreased the value of money transfers from Russia. The average cost of sending $200 to the region was 6.9% in the second quarter of 2023 (excluding Russia). In 2024, remittances are projected to post a decline of 1.2%.

Remittance flows to Latin America and the Caribbean are expected to increase by 8% to reach $156 billion in 2023. The strong labor market in the United States positively impacted remittance flows. Remittances to Mexico, the region’s biggest recipient, are projected to increase by 9.7%. The growth of remittances is expected to be 45% in Nicaragua, 9% in Guatemala, and 7.5% in Colombia. The average cost of sending $200 to the region was 6.1% in the second quarter of 2023. Growth in remittances to the region is expected to slow to 4.4% in 2024.

Remittances to the Middle East and North Africa are expected to decline again in 2023, falling by about 5.3% to $61 billion in 2023, driven mainly by a sharp drop in flows to Egypt. For Egypt, a significant gap between the official exchange rate and the parallel market likely caused a large part of remittances to be unrecorded. Meanwhile, remittance flows to the Maghreb countries experienced a gain, offsetting some of the decline. Sending $200 to the region cost 5.9% on average in the second quarter of 2023. In 2024, remittance flows are projected to recover to a 2.1% gain based on an expected turnaround in flows to Egypt.

Remittance flows to South Asia are estimated to have grown 7.2% in 2023 to reach $189 billion, tapering off from the over 12% increase in 2022. The increase is attributable entirely to remittance flows to India, which are expected to beat previous forecasts by $14 billion and reach $125 billion in 2023. The key drivers of remittance growth in 2023 are a historically tight labor market in the United States, high employment growth in Europe reflecting extensive leveraging of worker retention programs, and a dampening of inflation in high-income countries. Sending $200 to the region cost 4.3% on average in the second quarter of 2023. In 2024, growth in remittance flows is expected to fall to 5% due to projected weaker economic growth in the United States, the Euro Area, and GCC countries, major hosts of migrant workers from the region.

Remittance flows to Sub-Saharan Africa are expected to have increased by about 1.9% in 2023 to $54 billion, driven by strong remittance growth in Mozambique (48.5%), Rwanda (16.8%), and Ethiopia (16%). Remittances to Nigeria, accounting for 38% of remittance flows to the region, grew by about 2%, while two other major recipients, Ghana and Kenya, posted estimated gains of 5.6% and 3.8%, respectively. Fixed exchange rates and capital controls are diverting remittances to the region from official to unofficial channels. In 2024, remittance flows to the region are projected to increase by 2.5%. Sending $200 to the region cost 7.9% on average in the second quarter of 2023.

See the Migration and Development Brief 39. Follow @GlobalKNOMAD for updates.