Why remittance inflows growth could slow to just 0.2% in 2023

Source: The post is based on the article “Why remittance inflows growth could slow to just 0.2% in 2023” published in Indian Express on 17th June 2023

What is the News?

According to the World Bank’s latest Migration and Development Brief, India is expected to post a growth of just 0.2% in remittance inflows in 2023.

Note: India had registered a growth of more than 24% to reach a record-high $111 billion in remittances in 2022.

Why are remittances important?

In the aftermath of the Covid-19 pandemic, remittances are being viewed as a critical financial inflow.

It is an important source of foreign exchange for several countries including those in South Asia.

Remittances are highly complementary to government cash transfers and essential to households during times of need.

In India, the largest global recipient, remittances represented only 3.3% of GDP in 2022.

Note: Remittance inflows represented very large shares of GDP in countries such as Tajikistan (51% of GDP), Tonga (44%), Lebanon (35%), Samoa (34%), and the Kyrgyz Republic (31%).

What are the top sources of remittances for India?

Almost 36% of India’s remittances are from the high-skilled and largely high-tech Indian migrants in three high-income destinations — the US, the United Kingdom, and Singapore.

Remittance inflows from the GCC countries account for about 28% of India’s total remittance inflows.

Why are remittances expected to grow at a slower pace in 2023?

Slow growth in OECD economies: Slower growth in OECD economies — especially in the high-tech sector in the United States has affected the demand for information technology (IT) workers.

Lower demand for migrants in the Gulf Cooperation Council (GCC) countries due to declining oil prices. This is expected to slow the growth of the Gulf Region from 5.3% in 2022 to 3% in 2023.

High Base effect: In 2022, India registered a growth of more than 24% to reach a record-high $111 billion in remittances in 2022. The high base in 2022 will significantly affect the growth rate of remittances for India in 2023.

What was the trend for remittances in 2022?

In 2022, India posted more than 24% growth in its inward remittances to reach $111 billion, higher than the World Bank’s earlier estimate of $100 billion. This represented 63% of South Asia’s remittance flows, which grew by more than 12% in 2022 to reach $176 billion.

The top five recipient countries for remittances in 2022 were India ($111 billion), followed by Mexico ($61 billion), China ($51 billion), the Philippines ($38 billion), and Pakistan ($30 billion).

Remittances were supported by the 1) oil surge in member countries of the GCC, which increased migrants’ incomes, 2) large money transfers from the Russian Federation to countries in Central Asia and 3) a strong labour market in the US and the OECD countries.