How is the recession hitting remittances from migrant workers?

May 18, 2009

     By Duncan Green     

Remittances sent to developing countries in 2008 from migrant workers overseas came to a massive $305bn – two and a half times greater than the (record) volume of global aid. But how are they weathering the global crisis? I’ve just been reading the World Bank’s latest (OK, end of March – I’m playing catchup as usual) Migration and Development Brief. Main findings:

A sharp decline of 5‐8 percent predicted for 2009 compared to 2008. This compares with double digit growth in previous years (see graph).

Some regional variation in both timing and severity:  A slowdown in remittance flows to Latin America and the Caribbean began early in 2008 and deepened in the third quarter. In contrast, remittance flows to South Asia surged in 2008. In 2009, South Asia is expected to experience a sharp slow down. In fact, all regions are expected to see a decline in remittance flows in 2009. The worst hit region is Eastern Europe and Central Asia, with a 10% fall predicted in 2009. Overall, the two big groupings of low income and middle income countries both see falls of about 5%. South‐South remittances from Russia, South Africa, Malaysia and India are especially vulnerable.

Despite the fall, remittances are much more resilient than other flows such as private debt and equity flows and foreign direct investment. Why?

(a) Remittances are sent by the cumulated flows of migrants over the years, not only by the new migrants of the last year or two. This makes remittances persistent over time. If new migration stops, then over a period of a decade or so, remittances may stop growing. But they will continue to increase as long as migration flows continue.

(b) Remittances are a small part of migrants’ incomes, and migrants continue to send remittances even when hit by income shocks.

(c) Because of a rise in anti‐immigration sentiments and tighter border controls, especially in the U.S but also in Europe, the duration of migration appears to have increased (presumably people don’t want to risk trying to cross more closed borders, so stay where they are).

(d) If migrants do decide to go home, they are likely to take back accumulated savings. [Yes, this does sound contradictory – if more migrants were returning home before, that should lead to more remittances on this argument, but less on the previous one!]

(e) Several high‐income OECD remittance source countries are likely to undertake large fiscal stimulus packages in response to the financial crisis. This increase in public expenditure, if directed to public infrastructure projects, will increase demand for both native and migrant workers.

Despite anecdotal reports of migrants returning home, new migration flows are still positive, implying that the stock of existing migrants continues to increase. Migrants may prefer to stay on in the host country even after losing employment and look for jobs in other sectors as the situation in the home country may be even worse.