Remittances to Latin America and the Caribbean have dropped significantly in the first half of this year, according to the World Bank, and are forecast to decrease by 6.9% overall.
In a statement on Monday, the Bank said that remittance flows to developing countries are predicted to decline by 7.3% in 2009. The Bank released its updated estimates on the sidelines of an International Diaspora and Development Conference being held in Washington. For the Latin America and Caribbean region, the new forecasts show a -6.9 percent decline in remittances while it was stated too that flows to this region are expected to level off, with a smaller decline in the second half of 2009.
“Remittance flows to developing countries are expected to be $304 billion in 2009, down from an estimated $328 billion in 2008”, the Bank said. “The predicted decline in remittances by -7.3% this year is far smaller than that for private flows to developing countries”, it added. According to the Bank, remittances are relatively resilient because, while new migration flows have declined, the number of migrants living overseas has been relatively unaffected by the crisis.
However, sources of risk to the outlook include uncertainty about the depth and duration of the current economic crisis, unpredictable movements in exchange rates, and the possibility that immigration controls may be tightened further in major migrant-destination countries. “There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. 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,” Hans Timmer, Director of the World Bank’s Development Prospects Group was quoted as stating.
The statement noted that remittances have slowed in many corridors since the last quarter of 2008. In its Migration and Development Brief, it noted that the top recipients in terms of the share of remittances in GDP include many smaller economies such as Tajikistan, Tonga, Moldova, Lesotho, and Guyana.
In these countries remittances exceeded a quarter of the GDP, providing a lifeline to the poor, it noted. The Bank’s data showed that in 2001 remittance inflows to Guyana were US$22M and this jumped to US$278M in 2008, which was the same figure for 2007. Remittances as a share of Guyana’s GDP were 25.8% (in 2007).
The Bank noted that remittance flows to Latin America have been falling in large part because of a slowdown in the US construction sector. The new forecasts show a -6.9 percent decline in remittances for the Latin America and Caribbean region. Sub-Saharan Africa is also likely to experience a -8.3 percent slowdown in its remittance flows. However, flows to South Asia and East Asia have been strong; but remittances are expected to decline somewhat in 2009.
“Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of 7 or 10 percent can pose significant hardships to the people and to governments, especially those facing external financing gaps. Reducing remittance fees and developing innovative tools to leverage remittances for financial inclusion and capital market access should be a part of our response to the financial crisis,” said Dilip Ratha, Lead Economist in the Development Prospects Group of the World Bank.
Meantime, according to the revised projections by the World Bank, global economic growth is also expected to be negative, with an expected 2.9% contraction of global GDP in 2009. Global GDP growth is expected to rebound to 2% in 2010 and 3.2% by 2011. “In line with this outlook, we expect that remittance flows to developing countries could decline by 7-10 percent in 2009, with a possible recovery in 2010 and 2011”, the Brief said.
It noted that the pace of decline in remittance flows to Latin America and the Caribbean in the first half of 2009 is expected to level off as employment in the construction sector in the United States, a leading indicator of remittances (with an estimated lead of 3 months) to Latin American countries, appears to be stabilizing. Migrant employment in other sectors such as manufacturing and retail and wholesale trade also appear to be stabilizing. Flows to countries in the Latin America and the Caribbean region are expected to level off, with a smaller decline in the second half of 2009.
The Brief also raised the issue of protectionist tendencies in countries. It said that a key source of risk to the outlook arises from rising protectionist tendencies in destination countries. 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.
“There is little evidence to believe that immigration controls would reduce immigration or protect native workers. Businesses facing falling revenues need flexibility in hiring and firing decisions. Migrant workers are on an average more flexible and cheaper than comparable native workers. A market-based approach will not only help preserve the productive capacity—the employers and the firms—in the destination countries, it will also help sustain the lifeline of remittances to developing countries from which migrants come”, it stated.
“The persistence of the migrant stocks, however, will contribute to the resilience of remittance flows in the face of the crisis. However, considering that private flows to developing countries are expected to contract by 50 percent or more in 2009, remittances will become even more important for the external financing position of developing countries”, it added.
