Worldwide remittances are expected to reach their highest levels ever during 2012. Officially recorded remittances in 2012 will likely top $534 billion, according to a report issued last week by the World Bank’s Migration and Development Unit. Since many transactions go unrecorded or happen through informal channels, the actual amount of money that diaspora members sent to friends and family members overseas this year might be significantly higher.
It is difficult to overstate the importance of remittances in developing countries’ economies. Developing countries received $406 billion in remittances during 2012, over three times the amount provided through official development assistance. Tajikistan relies more heavily on remittances than any other country in the world, with remittance flows comprising 47 percent of the country’s gross domestic product (GDP). These flows also made up more than 20 percent of the GDP’s of Liberia, the Kyrgyz Republic, Lesotho, Moldova, Nepal, Samoa, and Haiti.
India and China receive more money in remittance than any other country. The World Bank expects diaspora members to send $70 billion in remittances to India and $66 billion to China in 2012. Mexico and the Philippines rank next, each projected to receive $24 billion in officially recorded remittances this year. Together, diaspora members living in the United States sent more money in remittances than diaspora members based in any other country.
Despite the continued sluggishness in the global economy, the report found that officially recorded remittances to developing countries grew by 6.5 percent between 2011 and 2012. Worldwide remittance flows have proven to be remarkably resilient to the global financial crisis. These flows rapidly recovered from the modest fall they experienced in 2009, whereas private capital flows have been slower to bounce back. The World Bank projects worldwide remittance flows will continue to rise in the years ahead, perhaps topping $685 billion during 2015.
Beyond global economic conditions, the cost of transferring money to relatives overseas has an enormous impact on the amount of remittances that diaspora members send. Not only is money that could have been given to friends and family members overseas instead used to cover transfer fees, it also depresses the overall amount of money that diaspora members put towards remittances. Policymakers have identified reducing remittance costs as one of the most important ways to facilitate these flows.
Overall, the global average cost of sending remittances stood at nearly 9.0 percent in 2012, though there is considerable variation between transfer corridors. The World Bank has identified sub-Saharan Africa as the most expensive region to send remittances, where transfer costs represent about 12.4 percent of the amount transferred. Southeast Asia’s rate of 6.5 percent is half the size.
Services that allow people to transfer money through mobile phones have helped lower remittance costs somewhat, but the World Bank report argues that this technology’s promise has not been fully realized yet. A variety of regulatory and operational challenges make international remittance services over mobile phones difficult to realize. In early 2012, 80 percent of the 130 mobile banking operators around the world offered cross-border mobile money transfers.
Policy changes in the United States are also expected to reduce remittance costs over the long term not only in the U.S., but also around the world. The World Bank believes that the rules will make transferring money cheaper by increasing price transparency, competition, and innovation in the remittance market. The new regulation was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act and will take effect
on February 7, 2013 sometime during the spring of 2013. However, the report cautions that in the short term, consumers may have to pay higher fees to transfer money and be at greater risk of being exposed to fraud and banking error while the remittance market and systems adjusts itself to the new regulatory norms.
About the Author: Susanna Groves is an Associate Policy Analyst in the Migration Policy Institute’s Migrants, Migration, and Development and Refugee Policy Program. She earned a master in public policy degree from Harvard University’s John F. Kennedy School of Government and a BA from the University of Michigan.
The contents of this blog are the sole responsibility of the author and its ideas and opinions do not necessarily reflect those of International diaspora Engagement Alliance, the U.S. Department of State, the U.S. Agency for International Development, the Migration Policy Institute, or any of their partners.