Remittances to rise, but Ukraine war poses disruptions: World Bank

The flow of remittances to low- and middle-income countries is expected to increase by 4.2% this year, following a strong gain in 2021 of 8.6%, the World Bank said Wednesday.

The officially recorded flows this year will amount to $630 billion — which, if China is excluded, is “larger than foreign direct investment and official aid” to poor countries. Remittances have measured “about three times the size of ODA for over a decade,” the report said.

Remittances to Ukraine were expected to jump 20% this year. The country is the largest recipient of these cash flows in Europe and Central Asia.

However, elsewhere in the region, Central Asian nations were set to see declines in remittances due to the Russian war in Ukraine, the bank warned. That dropoff is “likely to pose risks of food insecurity and rising poverty.”

Earlier this year, the bank predicted a recession in several Central Asian countries. Tajikistan and Kyrgyzstan are particularly vulnerable, with remittances making a third of the gross domestic product in both countries last year.

The bank’s latest study said the reason for the increase in remittances is rather straightforward: It was “driven first and foremost by migrants wanting to send money to support their families facing hardships back home.”

However, there is an immense cost to cross-border transfers. Lowering remittance fees “by even 2 percentage points would translate into $12 billion of annual savings for international migrants,” the World Bank said.

Speaking on Tuesday in Switzerland, International Monetary Fund Managing Director Kristalina Georgieva said that cross-border payments are not only expensive but also slow. She noted that the average cost of transfer is 6.3%.

“Some $45 billion per year are diverted into the hands of intermediaries and away from ultimate beneficiaries — including millions of lower-income households,” Georgieva said. Her estimate was based on a slightly higher total figure for remittances.

The bank calculated similar costs and broke it down by region, saying it was cheapest to send money to South Asia, at a cost of 4.3%, while Sub-Saharan Africa was the most expensive, with fees hitting 7.8%. The Sustainable Development Goal target was to bring the cost down to less than 3%.

Ukrainian migrants, who are increasingly sending more money to their home country, are also paying high fees — especially from Europe, with a cost of about 6.5% per transfer from Germany to Ukraine, though the cost from the U.S. is slightly lower at just over 5%. For Ukrainians migrants alone, a 2 percentage point reduction in cost would save them $400 million a year.

The fragmentation of the global economy, made worse by the Russian war in Ukraine and tensions between major players, could raise remittance costs and slow transfers, the bank said.

According to the latest data, Latin America and the Caribbean saw a 25.3% increase in remittances last year, while sub-Saharan Africa was up 14.1%. Remittances to East Asia and the Pacific fell by 3.3% when China is included in the figures. However, without China and its giant economy, the region saw positive growth.

The largest recipient nations were India, Mexico, China, the Philippines, and Egypt.

The war in Ukraine “strengthened the case for supporting destination communities that are experiencing a large influx of migrants,” said Dilip Ratha, lead author of the report.

The combination of the economic downturn still hitting low-income countries because of COVID-19 and the war in Ukraine could lead to increased migratory pressures, the report cautioned.

This movement of people “would clash against tighter border controls and shifting public perception against migrants in many high-income countries,” the report said. “The result could be an increase in irregular and dangerous border crossings, and abuse and exploitation of migrant workers.”