Remittances Fell by $8 Billion and Are Still Too Expensive: World Bank
The World Bank recently reported an $8 billion decline in global remittances in 2016, a 2.4% decrease from the previous year.
Falling Oil Prices Hit Labor Exporters
India absorbed the brunt of the decline, shedding nearly $5.8 billion USD of its expected volume, a loss of nearly 9%. Neighboring Bangladesh and Nepal saw drops of 11% and 6.7% respectively. The shortfall is attributed to low oil prices and an overall muted fiscal policy in the GCC countries, which collectively host over 22 million foreigners. This includes over 7 million Indian migrant workers.
Many of these developing countries rely on inbound remittances for a significant portion of their GDP. The stories on the ground are troubling: in late 2016, news outlets reported the Indian government was evacuating up to 10,000 Indian workers out of Saudi Arabia and Kuwait, who had lost their jobs and could not afford to pay for flights back home.
Traditionally, nearly 96% of India’s labor export is bound for the Gulf states. It stands to reason that diversification will now be much higher on their national agenda.
Positive Growth Still Evident
That diversification strategy has worked well for other labor exporters. Notably, the Philippines continued to post remittance growth in 2016, with an additional $1 billion being added to its total inbound volume. Although it has about 1 million workers deployed in the Middle East, it also has migrant worker communities stationed in two dozen countries across Asia, Europe, and the Americas.
Latin America and the Caribbean also saw strong upticks in their inbound remittances. The weakening of the Mexican peso against the US dollar resulted in a 9% remittance growth in 2016, with similarly strong numbers posted by Guatemala and El Salvador.
Remittances Remain Expensive
Perhaps the most interesting indicator in the World Bank report concerns the unchanged global average cost of remittances. From 2015 to 2016, the cost of the average remittance transaction has held firm at 7.45%, still significantly higher than the Sustainable Development Goal of 3% that the UN had set for 2030.
The World Bank attributes the lack of change to increasing compliance costs and banks’ de-risking activities, which create formidable barriers of entry for new remittance players and technologies.
Why are workers still paying so much for remittances? Let’s hear your thoughts.
Images via Pixabay