Strategy Note /

Remittances forecast raised by World Bank but there are downside risks

  • World Bank forecasts remittance growth of, respectively 7.3% and 2.6% in 2021 and 2022 (versus 2.6% and 2.2% previously)

  • Downside risks to forecasts: fiscal taper in source countries and deceleration of digital transfers as travel re-opens

  • Growth not always for good or sustainable reasons: devaluation, Afghan spillover in Pakistan, smuggling fees in Mexico

Remittances forecast raised by World Bank but there are downside risks
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
18 November 2021
Published byTellimer Research

Growth forecasts increased again

The World Bank has again increased its forecasts for remittance growth in its latest report, published on 17 November: respectively 7.3% and 2.6% in 2021 and 2022, compared with 2.6% and 2.2% previously (in the May 2021 report).

Remittances again stronger than feared: WB lifts its forecast

According to the World Bank, diaspora remittances to low and middle income countries (ex-China) are now 6x portfolio flows, 3x official aid and 1.5x foreign direct investment.

Remittance growth is partly offsetting external account pressure from declines in these inflows, higher imported food and fuel costs, and weakness in tourism.

Remittance exposure and growth in emerging markets

Remittances: Change in growth rate in 2021 versus 2020

Be aware of downside risks though

The generic drivers of stronger growth in remittances than previously forecast are drawdown on savings by migrants, greater use of official channels for remittances (both due to less physical travel and fintech payment innovation), access to cash handouts in host countries, and a stuttering loosening of prior Covid-related lockdowns on economic activity in source markets.

However, there are material risks that remittances will not keep coming to the rescue in the emerging markets that depend on them.

Downside risks to remittance growth in 2022 are further waves of Covid disruption, fiscal taper in destination markets, and a deceleration in the switch from (undocumented) cash to (documented) digital transfers by migrants who are now more easily able to travel.

Furthermore, the global number of new migrants has now declined for two years. For example, fresh migrants from Pakistan to the GCC fell 64% in 2020 and 11% in 9M 2021.

Additionally, a part of remittance growth is not always for good or sustainable reasons: eg in the case of Pakistan, FX rate devaluation and the spillover from Afghanistan (both in terms of refugees and an alternative physical transport route), or, in the case of Mexico, stranded migrants and the payment of smuggling fees.

Related reading

Remittances to the rescue again, July 2021

Remittances forecast raised again by World Bank, May 2021

Remittances are still helping many emerging markets, but Nigeria is an outlier, May 2021

Remittances very strong for some, but not all, emerging markets, March 2021

Remittance drop in 2021 forecast by World Bank despite better 2020 than feared, November 2020

Remittances: Better than feared so far, September 2020

If remittances drop 20% who is exposed in emerging and frontier markets?, April 2020