Global trends in remittance flows

undpThe United Nations Development Programme (UNDP) recently released a working paper entitled, The Potential Contribution of the Zimbabwe Diaspora to Economic Recovery.

Its purpose is to assess the development potential of Zimbabweans living in the Diaspora. This is the second in a series covering the most important aspects of the paper.

There has been a notable increase in the global flow of remittances over the years. Remittance flows transferred through official channels more than tripled from US$101.6 billion in 1995 to US$317.7 billion by 2007. According to the World Bank, remittances in 2008 stood at US$328 billion, 15 percent higher than the figure for 2007. As a result of the global recession, the World Bank has estimated that remittances would fall by 7.3 percent in 2009 to US$305 billion. However, the decline is expected to be smaller than the decline in private or official capital flows since remittances are expected to be more resilient relative to other categories of resource flows to developing countries.

One key explanation for such resilience is that while, for example, portfolio flows may cease completely for a time, remittances tend to be only a small part of the income of migrants who will continue to remit, even if at a lower level than previously. An analysis of remittance flows shows that Latin America and the Caribbean regions are the largest recipients of remittances by volume. However, as a proportion of GDP, the Middle East and North Africa are the highest recipients. On the other hand, remittance flows to sub-Saharan Africa are considered to be highly underestimated.

It is estimated that informal remittances to sub-Saharan Africa may represent an additional 4565 percent of formal flows as compared with about 520 percent in the case of Latin America (Freund & Spatafora, 2005: 42). On a global basis, recorded remittance flows to developing countries have overtaken official development assistance flows in the past decade.

However, for sub-Saharan Africa aid flows are still significantly higher than recorded remittances. There are exceptions though, as individual countries such as Lesotho, Mauritius, Nigeria, Swaziland and Togo receive remittances that are greater than official development assistance. For instance, recorded remittances are almost 28 percent of GDP in Lesotho and more than 5 percent in Cape Verde, Guinea-Bissau and Senegal in 2005. In terms of sources of foreign currency, remittances constitute more than 25 percent of export earnings for Lesotho, Cape Verde, Uganda and the Comoros.

Over 50 percent of remittances are transferred through formal channels in all regions, except for sub-Saharan Africa. – Next week we will look at the nexus between migration, development and remittances.

Post published in: Economy

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