Remittances to developing countries to fall by 7.3% in 2009, says World Bank

9th August 2009

Simon Harding

Remittances to developing countries will drop by 7.3% in 2009, the World Bank announced recently. The announcing was timed to coincide with its International Diaspora and Development Conference. Despite the gloomy figures, remittance flows appear relatively resilient in the face of the global downturn, partly as the number of migrants living overseas has remained steady. Foreign direct investment has fallen by a far greater amount over the same period.

However, Hans Timmers, Director of the Development Prospects Group at the World Bank, fears that remittance flows are far from secure because rising unemployment will prompt rich countries to crack down on migrant workers: ‘There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. Such restrictions would curb remittances more than forecast and would slow the global recovery in the same way as protectionism against trade would endanger a global upturn’.

The impact of the downturn on global remittances shows broad regional trends. Latin America and the Caribbean suffered a 6.9% decrease as the US construction sector stagnated. Sub-Saharan Africa experienced a drop of 8.3%. South and East Asia emerge relatively unscathed, although the Bank predicts remittance decreases in the region next year. Mexico, India and China retain their positions at the biggest receivers of remittances, whilst Guyana, Tonga, Lesotho, Moldova and Tajikistan are most reliant on remittances as a percentage of their overall GDP.

International remittances are a significant contributor to the income of developing countries. By the late 1990s remittances had overtaken foreign aid, reaching $147.3 billion in 2007, compared to just $104 billion in aid. Although foreign direct investment topped remittances by roughly $20 billion in 2007, the lion’s share went to China; remittances are more evenly distributed amongst poor countries.

Remittance flows provide much-needed foreign currency for national governments. They can be used as collateral on international loans and tend to increase during national crises, as migrants remit more to help their families through uncertain times. It is doubtful whether some nations, such as Cape Verde and those cited by the Bank’s report, would be able to enjoy anything like their current living standards without substantial contributions from their citizens working overseas.

Households receive remittances directly: there is little opportunity for the high-level corruption or the embezzlement of funds, which affects international aid. Money flows straight into the pockets of those who need it. In war-torn regions, like the Horn of Africa, receiving households may use remittances as their main means of survival. But for many households remittances provide vital start-up capital for a small enterprise, which can support the household once the family member working abroad finally returns home. In this sense, remittances provide the credit needed to set up a small business in areas in which access to loans is often severely restricted.

The drop in global remittances will hit both national governments and individual households hard. But, although the potential impacts on national economic development and household livelihoods are cause for concern, the predicted 7.3% drop should not be allowed to fuel pessimism about the outlook for the coming year.

Remittances are notoriously difficult to measure because only a small percentage flow through ‘official’ channels. Despite OECD efforts to formalise remittance agents, most money is remitted through informal, trust and kin based networks, like the South Asian Hawala and Hundi systems and casa de cambio networks in South America. Analysis of official channels alone cannot present a complete picture.

Whilst remittances may provide start-up capital for budding entrepreneurs, without good infrastructure, a sensible regulatory environment and political stability, the prospects for any small enterprise are limited. In a long term study of the Pakistani town of Mirpur, Roger Ballard, Director of the Centre for Applied South Asian Studies at the University of Manchester, reports that the town has the highest international migration and remittance rates in the country. However, despite big cash injections from Mirpuris working in the UK and the Gulf, the town’s economy continues to stagnate: unemployment is endemic. This is due, claims Ballard, in large part to the poor road links to nearby Islamabad, which shut off local farmers from a large and potentially lucrative market and halt productive investment of remittances in agricultural technology.

The 7.3% fall in remittances will hurt poor countries. But the figure is contestable and remittances alone are not a path to guaranteed economic development. Less attention should be paid to these headline grabbing figures and more to the task of creating conditions conducive to small enterprises in developing countries.


Also see: ‘Remittance flows to developing countries to decline by 7.3% in 2009, predicts World Bank’, Migration for Development, 13/7/09. Available at: http://www.migration4development.org/2009/07/remittance-flows-to-developing-countries-to-decline-by-73-in-2009-predicts-world-bank/

‘Remittances and Economic Development in India and Pakistan’, R. Ballard in Maimbo, S and Ratha, D eds. (2005) ‘Remittances: Development Impact and Future Prospects’, Washington DC: World Bank pages 103 - 118. Available at (complete chapter): http://books.google.co.uk/books?hl=en&lr=&id=IVhiyHtrkh0C&oi=fnd&pg=PA103&dq=roger+ballard+mirpur+2005&ots=c8oD1oyjtX&sig=huYrXHS-Y1KZWxV2nGvH15z8O-U#v=onepage&q=&f=false