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THE MONEY TRAIL

Excerpts from “Remittance Trends 2007”

Published by the World Bank, November 2007
Analysis BY RÉHAB EL-BAKRY

International remittances have come to represent a huge percentage of the income of developing countries. Transfers of hard currencies by migrant workers and professionals to their native countries in the developing world are expected to reach $240 billion in 2007, compared to $221 billion in 2006. This represents a sizeable chunk of the estimated $318 billion in worldwide remittances for 2007. According to the World Bank brief, for some developing countries, remittances may even surpass foreign direct investment (FDI).

“Recorded remittances are more than twice as large as official aid and nearly two-thirds of foreign direct investment inflows to developing countries. Remittances are the largest source of external financing in many poor countries. Also remittances have been less volatile than other sources of foreign exchange earnings in developing countries.”

The authors highlight the fact that changes in remittance transfer as a result of advances in telephony and increased internet penetration in the developing world, have allowed a higher number of people to access remittances directly. This is also coupled with a drop in remittance fees.

While technology has reduced the dependence on informal money transfer channels, it has also reduced the ability of officials to monitor remittance transactions, which has raised concerns these channels could be used for money laundering or to fund terrorism. “As money transfers are being subjected to more intense scrutiny by regulators, the remittance industry has experienced a shift in remittances from informal to formal channels. […] Mobile banking and partnerships with cell phone companies can potentially extend remittance services to millions of people in remote, rural areas. […] Regulations relating to anti-money laundering and countering the financing of terrorism appear to have become a constraint to reducing remittance costs, especially for smaller remittance service providers dependent on correspondent banks.”

The worldwide breakdown of remittances by region remained similar to that of 2006, though remittances to some regions have slowed. In Latin America, for instance, tighter US border control has contributed to a reduction in remittances to Mexico and other Latin American countries. Meanwhile, a crackdown in illegal immigration in both the US, and to a lesser degree in Europe, has slowed the growth of remittances to certain countries.

“Latin America and the Caribbean region remains the largest recipient of (recorded) remittances. However, the growth in remittances to the region has slowed in recent months. Remittance flows to Europe and Central Asia have registered the highest growth rate among six developing regions, mostly due to upward revision of data in some countries. As a share of GDP, remittances are the highest in the Middle East and North Africa region. Remittance flows to sub-Saharan Africa are grossly underestimated, with wide gaps in data reporting in many countries.”

India, Mexico and China are the top three recipients of remittances with a combined total of nearly one-third of all transactions received by developing countries. Also on the top 10 list are France, Spain and the UK. Remittances to these nations are mostly from other high-income European countries.

“Countries in South Asia and East Asia are experiencing robust growth in remittances. In the Philippines, remittances rose by 15 percent year-on-year […]. Both Bangladesh and Pakistan reported over 20 percent growth in remittances […]. High oil prices and strong economies in the oil-exporting Middle Eastern countries are contributing to strong demand for migrant labor. In India, the largest remittance-recipient developing country, private current transfers grew by 30 percent in the first half of 2007.” The countries of the Middle East and North Africa continue to double as both recipients and sources of remittances. In the case of the countries of the Gulf Cooperation Council (GCC), the high prevalence of migrant workers and professionals from other countries in the region has bolstered the remittances within the region, contributing to an estimated 86 percent growth since 2002.

In the case of Egypt, the country received an estimated $3.34 billion in remittances in 2007. The highest source of remittances for Egypt is Saudi Arabia, with $1.7 billion – more than half of all remittances. Egyptians working in the US, the fifth largest source of remittances, returned $145 million to their country.

The full text of this brief is available on the World Bank website at www.worldbank.org

Source: World Bank

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