World economy: Remittance lifeline at risk for developing countries

By THE ECONOMIST INTELLIGENCE UNIT
From The Economist
Published: December 31, 2008

Remittances from overseas workers, a financial lifeline for many developing countries, are under pressure as a result of the downturn in the global economy. With world GDP expected to contract by 0.4% in 2009, and with recessions or sharp slowdowns in growth likely in key destinations for migrant workers—including the US, the EU, the Gulf states and Russia—remittance flows to developing countries are likely to suffer. This will have particularly negative implications for private consumption in affected countries.

Remittance flows to developing countries are already slowing. In its Migration and Development Brief, published in November, the World Bank estimates that remittances this year will total US$283bn, only 7% higher than in 2007. This compares with double-digit growth rates every year since 2001. As the global recession deepens in 2009, the impact on remittances will be more pronounced. The bank's core scenario envisages remittances contracting by 0.9%, but it concedes that in the worst case flows could decline by almost 6%. Given the sharp deterioration in global economic conditions since the World Bank published this forecast, and the fact that individual countries' balance-of-payments data are only starting to reflect the financial turmoil in October, the odds are increasing that remittance flows in 2009 will be at the weak end of the bank's projections, or worse. Read more