Remittances sent worldwide have increased 64.3 per cent in the past decade, rising from $420.1billion 10 years’ ago to $653.4billion in the last year, shows research by ACE Money Transfer, the online remittance provider.
ACE Money Transfer says the boom in remittances coincides with the recovery from the global financial crisis in 2011-12. ACE Money Transfer adds that the rise highlights the increasingly important role that remittances from expat workers play in supporting developing economies. This is particularly the case in periods of global economic stress such as the current macroeconomic situation.
Global economic growth is expected to slump from 6.1 per cent last year to 3.2 per cent this year — significantly lower than the 4.1 per cent anticipated in January. This is due to rising interest rates and spiralling inflation. This slowdown in growth is expected to hit low-income countries harder.
ACE Money Transfer says this makes the need for quick, efficient and low-cost remittance services even more important. Remittances are particularly important in rural areas, where aid organisations have less of a presence. It’s estimated that income from remittances is more than three times higher than that from official aid and foreign direct investment combined.
Remittances also play a key role in urban areas, helping drive investment into real estate and infrastructure in developing countries.
Rashid Ashraf, CEO of ACE Money Transfer, says, “Remittances have a massive impact on people’s lives across the world. When times are tough and economies are struggling, this is when remittances are particularly important.
“Around three-quarters of remittances sent globally are used to cover essential things, like putting food on the family’s table and covering medical expenses, school fees or housing expenses. In addition, in times of crises, migrant workers tend to send more money home to cover loss of crops or family emergencies.”
Countries facing significant economic stress at present include Sri Lanka, Pakistan, Nigeria and Nepal. Remittances play a key role in supporting the economies of all mentioned countries.
Remittances key to helping Sri Lanka and Nepal’s struggling economies
Sri Lanka in particular has struggled following the pandemic, with its economy having collapsed. The country has been short of cash to pay for vital food and fuel imports and has defaulted on its debt.
Remittances are a key pillar of Sri Lanka’s economy, reaching $7.1billion in the past year, up from $6.7billion the previous year. Remittances in Sri Lanka support economic growth, reduce the burden on social security payments and help alleviate poverty. Increases in remittances could significantly aid Sri Lanka’s economic recovery.
Nepal has also struggled due to the pandemic, with its economy being crippled by a widening trade deficit and skyrocketing inflation. Remittances to Nepal, which stood at $8.1billion last year, down from $8.2billion the previous year, make up around 50 per cent of the country’s foreign currency reserves.
How remittances can help moderate inflation in Pakistan and Nigeria
Pakistan and Nigeria are two other countries facing economic difficulties where remittances can play a key role in their recoveries. Both countries have been struggling with the effects of surging inflation this year.
Pakistan’s currency has devalued 28 per cent compared to the US dollar so far this year, fuelling surges in the prices of vital imported goods such as fuel, cooking oil and grains.
This has made remittances to Pakistan, which have risen 26 per cent to a record $33billion in the past year, even more important. Remittances are a key source of foreign currency for Pakistan and play a significant role in supporting its currency. This is in turn can help control inflation and the price of essential goods and services in the country.
Nigeria’s economy has also been struggling due to inflation, which increased by 18.6 per cent in June compared to the year before. Remittances to Nigeria, which stood at $17.2billion in the past year, are widely seen as key to helping Nigeria’s economic recovery post-pandemic. President Muhammadu Buhari has urged Nigerians in the diaspora to actively participate in the country’s recovery by sending money home.
The role of remittances in strengthening resilient economies like the Philippines
Remittances can also play an important role in countries where the economy has remained resilient. This includes the Philippines’ economy, which has continued to show rapid expansion this year despite global headwinds.
An important stabilising factor in its economy has been remittances, which have reached a record high of $34.9billion in the past year. Remittances in the Philippines are important in supporting domestic consumer spending, which has driven the country’s economic growth.
Remittances are a crucial source of foreign capital for many developing countries. Unlike other flows of private capital, remittances have remained resilient throughout the pandemic. As economics across the world continue to recover, remittances continue to play a vital role in helping countries build resilience and drive economic growth.