Remittances fall for second year running, are poised to make a comeback

Somali men walk in front of a branch of Dahabshiil, Somalia's largest remittance company, in Mogadishu, Somalia. (AP Photo/Farah Abdi Warsameh)

People from developing countries who work internationally are sending less money home.

It is the second consecutive year remittances dropped, making it the first significant decline in three decades. The trend is concerning, the World Bank said upon releasing the new remittance figures.

“Remittances are an important source of income for millions of families in developing countries,” Rita Ramalho of the World Bank said in a statement. “As such, a weakening of remittance flows can have a serious impact on the ability of families to get health care, education or proper nutrition.”

In 2016, $429 billion was sent to developing countries, about 2.4 percent less than in 2015. It mirrored a global trend where all remittances contracted by 1.2 percent. The main culprits are oil-rich countries in the Middle East and parts of Europe. Both experienced slower economic growth, which affected migrants from Asia and Africa who work in the regions and send money back to support their families.

Middle-income countries such as India, Nigeria and Egypt were most affected. Remittances are crucial for people living in developing countries. The total development aid money spent in 2016 was $142.6 billion – roughly three times less than money sent as remittances. A drop in remittance flows poses a potential development setback.

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However, there is some good news. The World Bank projects that the numbers will rebound this year. Remittances are projected to grow by 3.3 percent in 2017. Some of the factors that led to the decline are recovering. The value of the Euro and British pound are stabilizing after falling last year.

Despite the improvements, there are still some factors that limit amount of money that reaches developing countries. The global average fee for sending $200 is 7.45 percent, a steady figure that is far from the 3 percent rate set out by the Sustainable Development Goals. It is even higher for sub-Saharan Africa with a rate approaching 10 percent – a fee that keeps millions of dollars out of the pockets of families.

Banks say that they have to keep the fees high to deal with the risk of allowing remittances. Laws and regulations make sure that banks are not helping individuals or groups launder money. In some countries, such as Somalia, concerns about money reaching terrorist groups have led to higher fees and fewer options for sending money home.

Another potential obstacle are proposed laws that would levy new taxes on remittances. Some countries are considering such measures to both raise government revenues and deter undocumented migrants from traveling to work. One proposal in the U.S. would add a 2 percent fee to help pay for the border wall proposed by the Trump administration.

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“Remittances, or wire transfers, are commonly used by illegal immigrants to move money from the U.S. to their home countries,” Rep. Mike Rogers, R-Ala., said in a statement announcing the bill.

“This bill is simple – anyone who sends their money to countries that benefit from our porous borders and illegal immigration should be responsible for providing some of the funds needed to complete the wall,” he later said. “This bill keeps money in the American economy, and most importantly, it creates a funding stream to build the wall.”

The bill is in part motivated by the fact that most remittances from the U.S. go to Mexico. In fact, the $2.2 billion sent to Mexico in March was the most money in a single month since October 2008. Taking a cut of the money could help fund programs, but there may be unintended consequences. World Bank officials said that it has the potential to drive people to use “underground” methods to send money – exposing individuals to fraud and likely increasing transaction fees.

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About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.