Global Remittance Flows in 2021: A Year of Recovery and Surprises

Published in marketscreener on November 17, 2021

KNOMAD and the World Bank have just released our new semi-annual report – Migration and Development Brief 35. It is remarkable to see the recovery in remittance flows in 2021, proving again their reliability as an absolute lifeline for families of migrants back home, especially in times of need.

In 2021, we expect remittance flows to low- and middle-income countries (LMICs) to reach $589 billion in 2021, a 7.3 percent increase over 2020. Remittances now stand more than threefold above official development assistance and, excluding China, more than 50 percent higher than foreign direct investment.

This recovery follows the resilience of flows seen in the second half of 2020 which almost compensated for the disruption suffered during the second quarter; flows for the year recorded only a modest 1.7 percent decline in the face of one of the deepest global recessions.

Growth in remittance flows has been exceptionally strong (21.6 percent) in Latin America and the Caribbean. In most other regions, remittances have also recovered strongly, registering a growth of 5 to 10 percent in Europe and Central Asia, the Middle East and North Africa, South Asia, and Sub-Saharan Africa, but a slower pace of 1.4 percent in East Asia and the Pacific (excluding China).

In all developing regions of the world, migrants stepped up their support to families back home, especially to countries affected by the spread of the COVID-19 Delta variant. Their ability to help was enabled by a welcome pickup in economic activity and employment in major migrant destination countries, grounded partly in the exceptional COVID-19 emergency fiscal stimuli and accommodative monetary policies.

In 2021, the top five remittance recipients in current US dollar terms were India, China, Mexico, the Philippines, and the Arab Republic of Egypt. As a share of gross domestic product, the top five remittance recipients in 2021 were smaller economies: Tonga, Lebanon, the Kyrgyz Republic, Tajikistan, and Honduras. The United States was the most significant source country for remittances in 2020, followed by the United Arab Emirates, Saudi Arabia, and Switzerland.

The cost of sending money across international borders remained high, around 6.4 percent on average in the first quarter of 2021. Sending remittances to Sub-Saharan Africa is particularly high (8 percent). Corridor-specific data reveal that remittance costs tend to be higher when remittances are sent through banks than through digital channels or money transmitters offering cash-to-cash services.

The international migrant stock seems to have declined for a second consecutive year, with weak new migration flows and large return migration in 2020 and 2021. The number of foreign workers in the Gulf Cooperation Council (GCC) region, which is among the top destinations for migrants and leading sources of remittances, continued to decline in 2021. Even though migrants’ attempts to enter the United States through its southern border increased in 2021 compared with 2020, border incidents related to illegal crossings were still lower than was recorded in 2019. However, there was an increase in transit migrants stranded in Mexico and Central American countries.

Remittances are expected to continue growing in 2022, but there are downside risks. The COVID-19 crisis is far from over and poses the most crucial downside risk to the outlook for global growth, employment, and remittance flows to LMICs. The fiscal stimulus programs in major migrant destination countries cannot continue indefinitely. Moreover, the shift from cash to digital remittance channels, which was observed at the peak of the COVID-19 crisis in 2020, has likely run its course. Further growth will require accelerating access to bank (transaction) accounts (which is essential for using digital channels) for migrant populations. This process is hindered by anti-money laundering and countering the financing of terrorism (AML/CFT) regulations, which remain stringent, e.g., not facilitating e-KYC onboarding.

Policymakers should continue their efforts to keep remittances flowing by lowering the cost of remittances, increasing access to banking for migrants and remittance service providers, and making policy responses to the COVID-19 crisis (in terms of access to vaccines, healthcare, housing, and education) inclusive of migrants. Migrants may also need protection against overwork or underpayment by employers during the crisis. Finally, many migrant origin communities are unexpectedly facing the return of migrants in large numbers. They may need support in providing healthcare, quarantine facilities, and other social services to mitigate this situation effectively.

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