Remittances dry up as global recession bites

If the early trend is anything to go by, remittance flows to the developing countries may see a contraction this year, being true to the World Bank projections of a 0.9% fall in 2009. Job losses in the US, Spain, Australia, Middle East – the major remitters – are having a cascading effect on the recipient countries across the world. While the slowdown in the US and Europe have sent shockwaves to a large part of Latin America and Africa, the situation of Gulf Cooperation Council (GCC) countries is impacting many poor families in South East Asia severely.

In La t in Amer i c a and the Caribbean, remittance growth is expected to have frozen last year itself. The other major victims of a drop in remittance flows could be Tajikistan, Mexico and Bangladesh, not to mention the African countries. Tajikistan, the top recipient country in terms of remittances as a share of GDP (over 30%), is facing the consequences of the slowdown in the Russian economy. According to an estimate, remittances decreased by a whopping 50-60% during September- November 2008 compared to the same period last year. Government officials fear a contraction in the Tajik economy due to a substantial drop in remittance flows.

Mexico, the third largest recipient of remittances after India and China, is the other major victim of the ongoing slowdown. According to World Bank estimates, remittance flows (officially recorded) to this country witnessed an estimated 3.7% decline during January-September 2008. For El Salvador, a Central American country, remittances sent by its migrant work force, mostly settled in the US, dropped 6.6% in November 2008. November was the third consecutive month of falling remittance flows, according to central bank data. In Africa, countries such as Somalia, where remittances constitute more than 20% of its GDP, shrinking fund flows would mean drastic rise in poverty level.

While the governments in many countries try to cope with the sudden reverse in foreign remittance growth, the World Bank estimates show that the situation may not remain so gloomy next year. A recent report by the Bank says that under the scenario of constant migrant stock in the sourcing countries, remittances are expected to recover in 2010, with an increase of 6.1%.

The flow of remittances to the developing countries saw an estimated 6.7% growth to $283 billion in 2008.