India tops remittance flows at $125 billion in 2023: World Bank

Monitoring Desk

WASHINGTON: India saw the highest amount of remittance inflows in the world in 2023 at $125 billion, driven by several factors, including the country’s agreement with the UAE, for promoting the use of dirhams and rupees for bilateral trade, the World Bank said.

In a report, the World Bank further said growth in remittances in India is expected to halve to 12.4 percent in 2023 from a historic peak of 24.4 percent in 2022. “Remittances are expected to increase by $14 billion and rise to $125 billion in 2023, increasing India’s share in South Asian remittances to 66 percent in 2023 from 63 percent in 2022,” said the World Bank’s latest Migration and Development Brief.

India was followed by Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).

Economies where remittance inflows represent substantial shares of Gross Domestic Product (GDP) — highlighting the importance of remittances for funding current account and fiscal shortfalls — are Tajikistan (48 percent), Tonga (41 percent), Samoa (32 percent), Lebanon (28 percent), and Nicaragua (27 percent).

On India, the World Bank said the main contributing factors are declining inflation and strong labour markets in high-income source countries, which boosted remittances from highly skilled Indians in the US, the UK, and Singapore, which collectively account for 36 percent of the total remittance flows to New Delhi. “Remittance flows to India were also boosted by higher flows from the GCC, especially the UAE, which accounts for 18 per cent of India’s total remittances and is the second-largest source of them after the US,” the report said.

It further said remittance flows to India benefited particularly from its February 2023 agreement with the UAE for establishing a framework to promote the use of local currencies for cross-border transactions and cooperation for interlinking payment and messaging systems.

The use of dirhams and rupees in cross-border transactions will be instrumental in channeling more remittances through formal channels, it said.

Remittances to low- and middle-income countries grew an estimated 3.8 per cent in 2023, a moderation from the high gains of the previous two years.

Of concern is the risk of decline in real income for migrants in 2024 in the face of global inflation and low growth prospects, the report added.

Slowdown in Pakistan remittances

The World Bank has projected a slowdown in remittances to Pakistan and estimated it to drop to $24 billion in 2023 and a further drop below $22 billion with a 10 percent decline in 2024.

“Formal remittance flows plummeted by 20 percent in 2023 on top of a decline of 5 per cent in 2022. Remittance flows in 2023 are expected to drop to $24 billion,” reads “Leveraging Diaspora Finances for Private Capital Mobilization” – the latest report published by the Washington-based institution.

It also talks about the currency devaluation effects, saying the rupee depreciated sharply between early 2022 and early 2023, and the government’s attempts to limit capital outflows through import and capital controls diverted remittance inflows from formal channels, contributing to shortages of foreign currency.

“In Pakistan, low expectations of a return of positive economic growth, as the IMF-supported program takes effect, are likely to weigh on public confidence,” the World Bank says of the outlook, adding that this might cause remittances to plummet by 10% and fall below $22 billion in 2024.

The report continues by talking about how this led to a growing illegal market in nations like Pakistan.

“Policies governing exchange rates and depreciation have encouraged migrants in Bangladesh, Pakistan, and Sri Lanka to transfer money through both formal and informal channels, taking advantage of black market premia.”

It further stated that Pakistan’s currency depreciated by 36 per cent against the dollar between January and September 2022, and 14 per cent against its trading partner currencies between January and July 2022. As inflation raged and a balance of payments crisis seemed imminent, the government sought financial assistance from the IMF to stabilise the exchange rate.

The bank further stated that loss of confidence contributed to migrants’ preference for the parallel exchange market and informal channels of money transfer, which further decreased official remittance flows to Pakistan.