Remittances to poor countries to plunge more than 7% in 2009

The year 2009 is expected to see the first worldwide decline in economic growth since the Great Depression of the 1930s. As forecast by the World Bank, this negative economic growth may lead to a decline in remittance inflows into such economies by 7.0% to 10.0%.

According to a new report released by the Bank at the opening session of a two- day International Conference on Diaspora and Development, the global economy is likely to see a 3.0% contraction in 2009. While this would have an impact across the board, the hardest hit would be the poor countries in Europe and Central Asia, Sub- Saharan Africa, and Latin America and the Caribbean.

Presenting the report, World Bank Economist Dilip Ratha said “Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of 7.0% or 10.0% can pose significant hardships to the people and to governments, especially those facing external financing gaps.”

Over the last few years, the remittance growth in the major developing regions, particularly in Latin America and the Caribbean (LAC), has been showing a weakening trend. For instance, the growth in LAC fell to a meagre 2.0% in 2008, following nearly 7.0% growth in 2007 and 18.0% in 2006. This steady decline in remittance growth was primarily caused by a sharp slowdown in US construction sector — a major provider of employment for the immigrant labour in the US.

For LAC, the Bank forecasts a 7.0% to 9.5% drop in remittances in 2009. For Europe and Central Asia, the fall would be more dramatic, between 15.0% and 17.0%. Remittances to Sub-Saharan Africa are also anticipated to decline quite sharply—from a growth of 6.5% in 2008 to a decline of 8.3% to 11.6% this year.

However, this falling trend may be reversed next year, and global remittances may see a 3.0% growth to $313.0 billion in 2010, compared to $304.0 billion currently forecasted for 2009. This renewed growth in remittances could be hampered if the ongoing economic crisis proves deeper and longer than currently forecasted, or if the currencies of host countries drop in value.

Moreover, strong political reactions to unemployment in host countries may result in tighter immigration norms, making it more difficult for migrants to enter host countries in search of work or find employers willing to hire and retain them.To make matters worse, almost all major labour destination countries — the US, the UK, Australia, Malaysia, Russia, South Africa, Italy, Spain, India — have reduced the annual quotas or imposed tougher standards for immigrant workers.

Commenting on the scenario, Director of the World Bank's Development Prospects Group, Hans Timmer said, “There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. Such restrictions would curb remittances more than forecast and would slow the global recovery in the same way as protectionism against trade would endanger a global upturn.”