Thursday, 10 Oct, 2024
Remittances increased from more than three times the level of FDI inflows in 2022 to over five times the level in 2023. Image Source: IANS
India is the world's greatest beneficiary of remittances, yet its share of remittances in the economy was only 3.4 percent.
According to a new World Bank estimate, India is expected to overtake other countries as the largest beneficiary of international remittances, with a total of $125 billion in 2023. This is an increase of 13 percent from the $111 billion in 2022, an amount that has greatly fueled the expansion of remittances throughout South Asia (7.2 percent). The World Bank named China, Mexico, the Philippines, Egypt, and India as the top five recipients in its most recent "Migration and Development Brief," which was released on Monday.
China, India, Mexico, and the Philippines rounded out the top four last year; however, Egypt has since displaced Pakistan in the fifth position.
Remittance flows to low- and middle-income countries (LMICs) are projected to have reached $669 billion in 2023 as a result of robust labour markets in developed economies and Gulf Cooperation Council (GCC) nations continuing to facilitate migrants' ability to remit money home.
Remittance inflows increased by region, with South Asia (7.2 percent), East Asia and the Pacific (3 percent), Latin America and the Caribbean (8 percent), and Sub-Saharan Africa (1.9 percent) experiencing the most significant rises. For the second year in a row, flows to the Middle East and North Africa decreased, falling by 5.3 percent, mostly as a result of a steep decline in flows to Egypt. Remittances to Central Asia and Europe decreased by 1.4 percent as well, having increased by more than 18 percent in 2022. The United States of America remained the top source of remittances.
The importance of remittances in supporting current account and fiscal shortfalls is shown by the economies of Tajikistan (48 percent), Tonga (41 percent), Samoa (32 percent), Lebanon (28 percent), and Nicaragua (27 percent), where remittance inflows account for significant proportions of GDP.
Remittance growth to LMICs is predicted to further slow down to 3.1 percent in 2024 due to the pattern of declining global economic activity. The likelihood of weaker employment markets in a number of high-income nations and a decreasing rate of economic development are the main drivers of the revised estimate.
Top 10 Recipients of Remittances in South Asia (2023)
Source: World Bank
Estimates indicate that remittances to South Asia increased by 7.2 percent in 2023 to a total of $189 billion, a down from the almost 12 percent surge in 2022. Remittances to India, which are predicted to surpass prior estimates by $14 billion and reach $125 billion in 2023, are solely responsible for the growth. A historically tight labour market in the US, strong employment growth in Europe as a result of significant worker retention programme leveraging, and a slowdown in inflation in high-income nations are the main factors driving remittance growth in 2023. In the second quarter of 2023, the average cost of sending out $200 to the region was 4.3 percent.
“Remittances are one of the few sources of private external finance that are expected to continue to grow in the coming decade. They must be leveraged for private capital mobilization to support development finance, especially via diaspora bonds,” said Dilip Ratha, lead economist and lead author of the report. “Remittance flows to developing countries have surpassed the sum of foreign direct investment and official development assistance in recent years, and the gap is increasing.”
Numerous nations, most notably India, have put in place savings plans to entice their non-resident citizens to deposit foreign money. These deposits are typically free from taxes, yield greater interest rates than equivalent foreign investments (such as US treasuries or term deposits in US banks), and are typically repatriable. As of September 2023, nonresident Indian deposits in India amounted to $143 billion, registering an increase of over $10 billion in one year.
Even though foreign direct investment (FDI) fell by 31 percent between 2022 and 2023, remittances continued to be a vital source of foreign cash and private financial flow for the majority of South Asian countries. FDI levels fell by 45 percent to $38 billion in 2023 from a peak of $69 billion in South Asia in 2020. Remittances increased from more than three times the level of FDI inflows in 2022 to over five times the level in 2023. There was significant difference in remittances across South Asia as a percentage of GDP.
Nepal maintained its position as the country in South Asia with the largest remittance share in relation to GDP, at 27 percent. Additionally, it ranked seventh globally among the nations most reliant on remittances. In contrast, in 2023, remittances as a percentage of GDP varied between 7 percent in Bangladesh and Pakistan and 5.2 percent in Sri Lanka. India is the world's greatest beneficiary of remittances, yet its share of remittances in the economy was only 3.4 percent.
The agreement in February 2023 between India and the United Arab Emirates to establish a framework to encourage the use of local currencies for cross-border transactions and collaboration in linking payment and messaging systems was particularly beneficial to remittance flows to India. In order to direct more remittances through official channels, it would be important to use dirhams and rupees in cross-border transactions.
Apart from being the largest recipient of foreign remittances in the year 2023, New Delhi also managed to positively adjust its current account deficit and improve its balance of payments in Q1 of the FY2023-24. A notable aspect of India's Balance of Payments in Q1 of FY2023–24 was the significant reduction of the Current Account Deficit (CAD). In comparison, the CAD improved to $9.2 billion, or 1.1 percent of GDP, in the same quarter of the previous fiscal year (Q1: 2022-23) from $17.9 billion, or 2.1 percent of GDP.
