Remittances & Development

Remittances serve as a lifeline for millions of families across the globe, acting as a vital source of income for many developing countries. Defined by the Organisation for Economic Co-operation and Development (OECD) as funds sent by individuals residing and working abroad to their home countries, these financial inflows play a pivotal role in shaping economic landscapes and fostering sustainable development initiatives worldwide.

According to the International Monetary Fund (IMF), remittances encompass household income generated from foreign economies, primarily stemming from the temporary or permanent migration of individuals to these nations. This steady flow of financial resources holds profound significance in the realm of international development for several compelling reasons.

First and foremost, remittances stand as one of the most substantial sources of external finance for developing nations. Over the past decade, personal remittances received by low- and middle-income countries have demonstrated consistent growth, surging from USD 302 billion in 2010 to USD 445 billion in 2017. This represents a notable compound annual growth rate of 5.7%, underscoring the resilience and reliability of remittance inflows in comparison to other forms of private capital flow, such as foreign direct investment (FDI). While FDI experienced fluctuations and a subsequent decline from its peak of USD 744 billion in 2013 to USD 551 billion in recent years, remittances have remained a steadfast pillar of economic support for many nations. Assistance from the public sector, though important, has seen marginal changes in volume, with slight increases from USD 130 billion to USD 162 billion during the same period.

Trends of major external finance sources to low- and middle-income countries

Source: World Bank DataBank World Development Indicators

Furthermore, remittances constitute a significant portion of the gross domestic product (GDP) of developing countries, exemplifying their profound impact on national economies. On average, remittances contribute approximately 1.57% to the total GDP of low- and middle-income economies. Remarkably, countries such as Tonga and Nepal rank among the top five nations globally with the highest proportions of remittances to GDP, with figures reaching as high as 40% and 27% of their respective economies.

Share of remittances to GDP

Source: World Bank DataBank World Development Indicators

In light of these trends and statistics, it becomes evident that remittances play a pivotal role in driving economic growth, reducing poverty, and promoting financial inclusion across diverse regions. As such, harnessing the full potential of remittance inflows presents a promising avenue for advancing sustainable development agendas and fostering prosperity for communities worldwide.