Traditionally, foreign workers boost both the economies of the countries they work in as well as their home countries. But studies say that the current global economic crisis has sapped much of such cross-border monetary exchanges.
In 2008, workers abroad collectively sent $328 billion in earnings back to their home countries, compared with $285 billion in 2007, a 15.1 percent increase. Workers from India, China, Mexico, and the Philippines sent the most money back home.
Remittance occurs when foreign workers send part of their earnings back to their home country instead of spending it in the host country.
Of worldwide remittances, India, with receipts of $52 billion, was on top of the list, followed closely by China, with nationals sending $40.6 billion home. Mexico and the Philippines were also among the top five, receiving $26.3 billion and $18.6 billion respectively, according to the July World Bank Migration and Development Brief 10, “Outlook for Remittance Flows 2009-2011: Remittances expected to fall by 7-10 percent in 2009.”
The above numbers do not tell the entire story. Actually, remittance growth took a hit due to worldwide job losses and economic woes experienced by almost every country.
India’s economy will suffer the most among all nations when remittances from foreign shores slow down, suggest experts in a Knowledge @ Wharton (KW) article.
The decreasing remittances, coupled with a slowdown in foreign investments already experienced in the first quarter of 2009 (“portfolio investments stood at a negative $15 billion as foreign institutional investors pulled out”), could dampen India’s growth.
It will “hurt both the exchange rate, making the [Indian] rupee weaker and the asset markets, particularly the real estate market,” said Rajesh Chakrabarti, professor at the Hyderabad Indian School of Business.
In 2008, Mexico’s remittance growth was 4 percent, less than in 2007. During the first six months of 2009, Mexican’s remitted 11 percent less to their home country than during the same period in 2008. Workers from Jamaica remitted 17 percent less to their home country than during the same period one year ago, resulting in the largest loss among all countries in that area.
“As the U.S. job market weakness continues, officially recorded remittance flows to the Latin America and the Caribbean region have dropped significantly in the first half of 2009,” the World Bank report said.
What comes as a surprise is that despite economic hardships, migrant workers are not returning to their home countries for the most part. But migration into the United States from Latin American countries has slowed down.
“New data show that existing migrants are unwilling to return as the employment situation back home is not very good and re-entering the U.S., in case they return, has become more difficult with tighter border controls,” according to the report.
“In contrast to Latin America, remittance flows to South Asia and East Asia have continued to post strong growth in 2009,” the World Bank report suggested.
Asian workers are still flocking to Middle Eastern countries such as the United Arab Emirates, Saudi Arabia, and Kuwait due to the oil income. Remittances from the United States have decreased significantly, while earnings sent back from Middle Eastern countries have increased, although not at the same proportion.
The researchers suggest that the increase in money sent back to the home country, especially by Indian nationals, do not stem solely from wages, but also from an increased appetite for investments, due to “falling asset prices, rising interest rate differentials and a depreciation of the local currency” in their host countries.
The World Bank estimates a significant drop in remittances this year “because of deterioration in the economic and employment situation in the migrant-destination countries in the first half.”
New estimates suggest that outflows of earnings from host countries to inflows in the workers’ home countries will show a decrease in growth of about 7 to 10 percent during the first half of 2009 over the prior year.
Estimates by the World Bank indicate that the developing regions of Europe and Central Asia will experience a 15 percent decline in growth over the same period in the prior year. Latin America and the Caribbean might fare a little better, with an estimated 7 percent decline. Other regions of the world will face a decline, but more moderate than Europe and Central Asia.
“The impact of the worsening employment outlook in Russia has been particularly severe for Central Asian countries such as Tajikistan, Moldova and the Kyrgyz Republic that receive a large share of remittances from Russia, and where remittances are a large share of GDP,” the report claims.
Experts suggest a number of reasons for declining remittance numbers besides the recession as a result of the economic downturn. Factors could include currency declines such as the depreciation of the Russian ruble, which fell in the beginning of July to a two-month low against the euro-dollar basket because of oil price fluctuations. Also, anti-foreign worker sentiments continue to fester in Russia, the U.K., and other countries because of high local unemployment rates and a scarce job market.
The researchers qualified their forecasts as they are just predictions and not based on foreknowledge of what the future holds. Unforeseen exchange rate fluctuations could affect the remittance inflow to any home country.
“If the crisis were deeper and longer than currently projected, the decline in remittance and migration flows would be steeper … The political reaction to weak job markets in destination countries could lead to more tightening of immigration controls,” World Bank researchers said.
In 2008, workers abroad collectively sent $328 billion in earnings back to their home countries, compared with $285 billion in 2007, a 15.1 percent increase. Workers from India, China, Mexico, and the Philippines sent the most money back home.
Remittance occurs when foreign workers send part of their earnings back to their home country instead of spending it in the host country.
Of worldwide remittances, India, with receipts of $52 billion, was on top of the list, followed closely by China, with nationals sending $40.6 billion home. Mexico and the Philippines were also among the top five, receiving $26.3 billion and $18.6 billion respectively, according to the July World Bank Migration and Development Brief 10, “Outlook for Remittance Flows 2009-2011: Remittances expected to fall by 7-10 percent in 2009.”
The above numbers do not tell the entire story. Actually, remittance growth took a hit due to worldwide job losses and economic woes experienced by almost every country.
India’s economy will suffer the most among all nations when remittances from foreign shores slow down, suggest experts in a Knowledge @ Wharton (KW) article.
The decreasing remittances, coupled with a slowdown in foreign investments already experienced in the first quarter of 2009 (“portfolio investments stood at a negative $15 billion as foreign institutional investors pulled out”), could dampen India’s growth.
It will “hurt both the exchange rate, making the [Indian] rupee weaker and the asset markets, particularly the real estate market,” said Rajesh Chakrabarti, professor at the Hyderabad Indian School of Business.
In 2008, Mexico’s remittance growth was 4 percent, less than in 2007. During the first six months of 2009, Mexican’s remitted 11 percent less to their home country than during the same period in 2008. Workers from Jamaica remitted 17 percent less to their home country than during the same period one year ago, resulting in the largest loss among all countries in that area.
“As the U.S. job market weakness continues, officially recorded remittance flows to the Latin America and the Caribbean region have dropped significantly in the first half of 2009,” the World Bank report said.
What comes as a surprise is that despite economic hardships, migrant workers are not returning to their home countries for the most part. But migration into the United States from Latin American countries has slowed down.
“New data show that existing migrants are unwilling to return as the employment situation back home is not very good and re-entering the U.S., in case they return, has become more difficult with tighter border controls,” according to the report.
Not All is Gloom
“In contrast to Latin America, remittance flows to South Asia and East Asia have continued to post strong growth in 2009,” the World Bank report suggested.
Asian workers are still flocking to Middle Eastern countries such as the United Arab Emirates, Saudi Arabia, and Kuwait due to the oil income. Remittances from the United States have decreased significantly, while earnings sent back from Middle Eastern countries have increased, although not at the same proportion.
The researchers suggest that the increase in money sent back to the home country, especially by Indian nationals, do not stem solely from wages, but also from an increased appetite for investments, due to “falling asset prices, rising interest rate differentials and a depreciation of the local currency” in their host countries.
Forecasting Increasing Declines in Remittances
The World Bank estimates a significant drop in remittances this year “because of deterioration in the economic and employment situation in the migrant-destination countries in the first half.”
New estimates suggest that outflows of earnings from host countries to inflows in the workers’ home countries will show a decrease in growth of about 7 to 10 percent during the first half of 2009 over the prior year.
Estimates by the World Bank indicate that the developing regions of Europe and Central Asia will experience a 15 percent decline in growth over the same period in the prior year. Latin America and the Caribbean might fare a little better, with an estimated 7 percent decline. Other regions of the world will face a decline, but more moderate than Europe and Central Asia.
“The impact of the worsening employment outlook in Russia has been particularly severe for Central Asian countries such as Tajikistan, Moldova and the Kyrgyz Republic that receive a large share of remittances from Russia, and where remittances are a large share of GDP,” the report claims.
Experts suggest a number of reasons for declining remittance numbers besides the recession as a result of the economic downturn. Factors could include currency declines such as the depreciation of the Russian ruble, which fell in the beginning of July to a two-month low against the euro-dollar basket because of oil price fluctuations. Also, anti-foreign worker sentiments continue to fester in Russia, the U.K., and other countries because of high local unemployment rates and a scarce job market.
The researchers qualified their forecasts as they are just predictions and not based on foreknowledge of what the future holds. Unforeseen exchange rate fluctuations could affect the remittance inflow to any home country.
“If the crisis were deeper and longer than currently projected, the decline in remittance and migration flows would be steeper … The political reaction to weak job markets in destination countries could lead to more tightening of immigration controls,” World Bank researchers said.
