In 2021, remittances to low and middle-income countries are predicted to total $589 billion. December’s Chart of the Month explains why these remittances (money sent by migrant workers back to their country) are so crucial to developing nations.
Life for migrants has been tough since the pandemic hit. Many have been stranded from families overseas or been vulnerable to COVID-19 as their jobs were commonly on the front line. However, recent data from the World Bank suggests that migrant workers are in fact sending home record amounts of money.
This resilience may seem surprising, but can be largely explained by the generous income support programs and the faster recoveries of richer host nations. Immigrants are more likely to be in work and employed (as opposed to being self-employed) compared to UK citizens. As a result, they have benefitted from the furlough scheme. Wage growth of over 10% in 2021, coupled with more job options, have also helped boost migrants’ incomes.
Remittances are vital for many developing countries where they boost low domestic incomes and allow families to access essentials such as education and healthcare. Importantly they allow recipients to invest in new businesses or save for the future, helping fund economic growth back home.
Often these flows of income aren’t small. In The Gambia and in Lebanon, they account for over 30% of GDP. Remittances can be extremely effective in raising living standards since unlike FDI, where money generated often leaves the country, they go directly to families and are generally contained within the economy. According to UNESCO, they have increased education spending by 53% in Latin America, activating the multiplier effect as the cash is recirculated, whilst also creating a better-skilled future workforce.
The future is still looking uncertain for migrant workers. Although the World Bank predicts that remittance growth will continue to expand in 2022, the threat of lockdowns or scaling back of fiscal stimulus could slow this growth. COVID-19 has also worsened attitudes towards immigrants, whilst border closures and travel restrictions have made it harder to find work. These are all pressures on future remittance flows.
Today’s Question of the Month: “What might be the long term effects of higher remittances for developing nations? Should we encourage these migrant workers to come to the UK?”