The World Bank, in its Global Economic Prospects report, has projected global growth to drop from 3.1% in 2022 to 2.1% in 2023. Notably, advanced economies like the United States and remittance-source countries are expected to see lower growth of 0.7% in 2023 (from 2.6% in 2022).
This trajectory will likely impact remittance flows to low- and middle-income countries (LMICs), prompting the question of how significant this impact will be.
As of June, the World Bank expected a 1.4% growth in remittances to LMICs, increasing from USD 626 billion in 2022 to USD 656 billion in 2023. However, this growth is lower than the 5% recorded in 2022. Certain countries have experienced declines in remittances. Pakistan and Bangladesh, for instance, reported drops in June and July. The State Bank of Pakistan revealed a decrease from USD 2.8 billion to USD 2.2 billion in June compared to the previous year, while Bangladesh Bank reported a 5.87% decrease from USD 2.1 billion in 2022 to USD 1.97 billion.
On the other hand, there are positive trends. Mexico, the second-highest recipient of remittances in 2022, saw an increase of 9.9%, receiving USD 30.2 billion in the first half of 2023. Similarly, the Philippines experienced a 3.1% rise in remittance inflows, totalling USD 12.98 billion between January and May 2023.
However, current statistics and trajectory suggest that remittance growth is unlikely to surpass the World Bank’s projections for 2023. Slower economic activity in host countries limits job opportunities and stagnates wages, making it challenging for workers to send higher amounts back home.
Take Mexico, for example. Despite increased remittances during the first half of 2023, families have said they need to curtail expenses due to inflation and a stronger peso against the US dollar.
The combined impact of recessions in source countries and inflation in recipient countries may ultimately cause remittance numbers to fall below the levels seen in 2022.
Let’s see if we’d have to eat our words.
