FINANCE: Remittances to Poor Countries Plunge up to 10 Percent

• by Jim Lobe (washington)
• Monday, July 13, 2009
• Inter Press Service

Poor countries in Europe and Central Asia, Sub-Saharan Africa, and Latin America and the Caribbean will be hardest hit, according to the report which was released during the opening session of a two-day International Conference on Diaspora and Development at the Bank's headquarters here.

The decline is expected to bottom out next year, however. Remittances should begin a gradual rebound in 2010, reaching 313 billion dollars worldwide by the end of the year, or three percent greater than the 304 billion dollars that is currently estimated for 2009.

Such a rebound, however, could be threatened if the ongoing economic crisis proves deeper and longer than currently projected, or if the currencies of host countries should unexpectedly decline in value.

Moreover, the political reaction to unemployment in host countries could result in measures to tighten immigration, making it more difficult for migrants to enter host countries in search of work or for those who are already resident there to find employers willing to hire or retain them.

'Almost all major destination countries – for example, the United States, the United Kingdom, Australia, Malaysia, Russia, South Africa, Italy, Spain India – have reduced the annual quotas or imposed tougher standards for immigrant workers,' according to the report, the latest edition of the Bank's 'Migration and Development Brief.'

'There is a risk that rising unemployment will trigger further immigration restrictions in major destinations countries,' said Hans Timmer, director of the Bank's Development Prospects Group. '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 latest report comes amid continued uncertainty over the depth and duration of the economic crisis that exploded last September with the collapse of the Lehman Brothers investment house.

The Bank is currently predicting a three-percent contraction in global gross domestic product (GDP) in 2009, the first worldwide decline in economic growth since the Great Depression. But it believes the worst may be over by the end of the year. According to its latest estimates, the global economy should grow by two percent in 2010 and 3.2 percent by 2011, with much of the growth coming from key emerging markets, notably China, India, and Brazil.

Particularly worrisome, especially for many developing countries, is the sharp fall in private foreign investment over the past year. From a high of 1.2 trillion dollars in 2007, net private flows of capital to developing countries fell to 707 billion dollars in 2008 and are projected to fall further to 363 billion dollars in 2009, according to the Bank's global Development Finance 2009 report released last month.

The decline in remittances has not been remotely as dramatic, according to the new report. Indeed, the Bank said it was surprised by the strength of remittances in 2008; they actually rose 15 percent overall in 2008, from 285 billion dollars to 328 billion dollars, according to the Bank's estimates.

It said remittances to South Asia, much of them from the Gulf states, actually grew 33 percent last year, with India alone reporting inflows of 52 billion dollars. Remittances to East Asia, especially to China and the Philippines, also grew strongly, some 20 percent overall, to 78 billion dollars.

While still positive, growth was much weaker in the other major developing regions of the world, particularly so in Latin America and the Caribbean (LAC) where a sharp slowdown in the crucial construction sector in the United States – a major employer of immigrant labour – resulted in a remittance increase of only two percent, compared to nearly seven percent in 2007 and 18 percent in 2006.

The outlook for remittances this year, however, is negative across the board, according to the latest estimates. For LAC, the Bank predicts a decline in remittances of between seven and 9.5 percent, with countries closest to the U.S. likely to be hardest hit. For Europe and Central Asia, the projected decline is even more dramatic; it could range between 15 percent and 17 percent, according to the report.

Remittances to Sub-Saharan Africa are also expected to fall relatively sharply – from a gain of 6.5 percent last year to a decline of between 8.3 percent to 11.6 percent in 2009.

While far less significant in dollar terms than the decline in private foreign investment, the reduction in remittances is likely to have a dramatic impact on the lives of many families among the world's poorest sectors, according to Dilip Ratha, who co-authored the report.

'Remittances provide a lifeline to many poor countries,' he said. 'Although they remain resilient, even a small decline of seven or ten percent can pose significant hardships to the people and to governments, especially those facing external financing gaps.'

For 2010, the Bank expects remittances to all developing countries to grow by 2.9 percent over 2009, although its low-case forecast calls for a continuing decline of 0.3 percent.

LAC prospects are the least positive: the Bank estimates the growth rate over 2009 at between minus two percent of one percent in positive territory. It estimates growth at between minus 0.5 percent to plus three percent in East Asia; 0.5 percent to three percent in Europe and Central Asia; minus 0.4 percent to 3.3 percent in the Middle East and North Africa; 0.5 percent to 3.9 percent in South Asia; and 1.1 percent to 4.4 percent in sub-Saharan Africa.

Overall, the top recipients of migrant remittances among all developing countries last year, according to the report, were India (52 billion dollars); China (40.6 billion dollars); Mexico (26.3 billion dollars); the Philippines (18.6 billion dollars); Poland (10.7 billion dollars); Nigeria (10.0 billion dollars); Egypt (9.6 billion dollars); Romania (9.4 billion dollars); Bangladesh (9.0 billion dollars); and Vietnam (7.2 billion dollars).

The top recipients of migrant remittances as a percentage of GDP were Tajikistan (46 percent); Tonga (39 percent); Moldova (34 percent); Lesotho (28 percent); Guyana (26 percent); Lebanon (24 percent); Samoa (23 percent); Jordan (22 percent); Honduras (21 percent); and Kyrgyzstan (19 percent), according to the report.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service