Nigeria faces huge challenged with remittances due to multiple exchange rates and balance of payment hutches. The World Bank said countries in that position will find it difficult to attract diaspora remittances, which previously formed a major part of Nigeria’s dollar earnings
Nigeria was yesterday missing in the list of top five remittances countries released by the World Bank Group.
The top five recipient countries for remittances in 2022 were India (receiving $111 billion), Mexico ($61 billion), China ($51 billion), the Philippines ($38 billion), and Pakistan ($30 billion).
The World Bank said remittances to Low-Middle Income Countries (LMIC) are expected to grow by 1.4 per cent to reach $656 billion in 2023, following a very strong eight per cent growth in 2022 and 10.6 percent in 2021.
The World Bank explained that in many remittance-recipient countries facing balance of payments difficulties and the emergence of gaps between the official and the market exchange rate, remittance flows may shift to informal channels, which can potentially underestimate the true size of official data on remittance flows.
Nigeria faces exchange rate difficulties with ongoing plan by the current government to unify exchange rates in the next few quarters. Nigeria had in the past recorded over $21 billion annual remittances from the diaspora, with the volume declining over the years.
According to the World Bank, economies where remittance inflows represent large shares of GDP—highlighting the importance of remittances for funding current account and fiscal shortfalls— include Tajikistan (51 per cent of GDP), Tonga (44 per cent), Lebanon (36 per cent), Samoa (34 per cent) and the Kyrgyz Republic (31 per cent).
The bank explained that besides economic growth and the employment levels of foreign workers, the other two variables that affect remittance flows are oil prices (especially in the Russian Federation and the GCC countries member countries of the Gulf Cooperation Council), and exchange rates of local currencies with respect to the U.S. dollar.
As a result, remittances are now even larger than FDI and ODA and, excluding China, larger than the sum of FDI and ODA.
This remarkable, consecutive year-on-year growth was supported by several factors such as strong oil prices in the Gulf Cooperation Council (GCC) countries, which increased migrants’ incomes; large money transfers from the Russian Federation to countries in Central Asia; and the strong labor market in the United States and other advanced migrant destination economies.
The World Bank announced that by region, remittance inflows grew by 0.7 per cent in East Asia and the Pacific, 19 per cent in Europe and Central Asia, 11.3 per cent in Latin America and the Caribbean, 12.2 per cent in South Asia, and 6.1 per cent in Sub-Saharan Africa in 2022. In the same period, remittance inflows declined by 3.8 per cent for the Middle East and North Africa region.
In 2023, however, slower growth in remittances is expected in all regions, notably in Europe and Central Asia (1 percent) and South Asia (0.3 percent). In Europe and Central Asia, remittances are slowing down because of lower Russian demand for their workers in Russia from that region, and the weakening of the ruble against the U.S. dollar.
It explained that in South Asia, growth in remittances is expected to slow due to worldwide layoffs in the information technology IT sector globally and the possible diversion of remittance flows to informal channels as domestic economic uncertainties worsen in some recipient countries.
By contrast, the growth rate of remittances is expected to remain relatively remain strong in Latin America and the Caribbean region (3.3 percent). Most of the senders of remittances to this region are based in the United States, where both the employment levels and wages of Hispanics and foreign-born workers and their wages have been strong. Growth rates of remittance flows are expected to be 1.5 percent in the Middle East and North Africa, 1 percent in East Asia and the Pacific region, and 1.3 per cent in Sub-Saharan Africa.
With the stock of migrants likely to increase globally due to income gap, demographic change, and climate change, remittances will continue to grow in a counter-cyclical manner.
Also, there is no doubt that during a crisis, remittances have emerged as a dependable financial lifeline in many economies through the pandemic and will continue to remain so. The need is to devise policies that can employ remittance flows for the development outcomes of the global south and north.
The World Bank has stepped up collaborations with source and recipient countries to improve data and remittances to mobilize private sector capital through diaspora bonds and globally improved sovereign ratings
