Top reasons why remittances are vital to a nation's economy
Remittances have become an essential part of the economies of many countries over the years. Remittances can be a significant source of income for many countries. The World Bank predicted that global remittances would reach $553 billion in 2021, with developing countries receiving approximately $470 billion. The value of remittances cannot be overstated, as they are critical to the economic growth of many nations.
Remittances can significantly contribute to a country's GDP. It is the second-largest source of external funding for developing countries, accounting for more than three times the amount of official development assistance, according to the World Bank. As a result, remittances can help boost a country's GDP and contribute to economic growth.
It contributes to a country's foreign exchange reserves, which are the amount of foreign currency held by the central bank. This can aid in stabilizing the country's currency, increasing its value and stability in international markets. Thus remittances can reduce inflation and increase the country's purchasing power.
Remittances can help reduce poverty in developing countries by providing a source of income for needy families. This can assist families in meeting basic needs such as food, shelter, and education, as well as improving their standard of living. In some cases, remittances can also assist families in investing in small businesses and creating job opportunities, which can help the country's economic development.
It promotes financial inclusion by encouraging the use of formal financial services such as banks and money transfer operators. This can assist individuals and families in saving money, obtaining credit, and developing financial resilience. Increased financial inclusion can also promote entrepreneurship and investment, which can stimulate economic growth.
Remittances can improve human capital by providing families with the means to invest in education and training. Individual skills and knowledge can be improved. It can make them more employable and productive. So there’s no doubt that remittances can aid long-term economic development by reducing reliance on foreign aid.
Online transactions are carried out by approximately one in every seven people worldwide, amounting to a staggering one billion people. Every year, about 200 million migrant workers send money back to their home countries. As a result, approximately 800 million people, on average, living in four-person households, benefit from the financial assistance provided by these flows.
Despite the COVID-19 pandemic and political unrest, the global remittance industry has demonstrated remarkable resilience. Indeed, according to the most recent World Bank data, remittances to low- and middle-income countries exceeded expectations, reaching a staggering US$605 billion in 2021. This represents a remarkable increase of more than 8% over 2020, highlighting the continued importance of remittances as a vital source of financial support for millions of households worldwide.
Migrant workers typically remit $200 to $300 to their home countries every one to two months, accounting for only 15% of their earnings. Despite their small proportion, remittances can account for up to 60% of a household's total income, providing a critical lifeline for millions of families. In essence, migrant workers' financial contributions are essential to meet the fundamental needs of their families left behind and supporting their social and economic well-being.
The value of remittance flows has increased fivefold over the last two decades, demonstrating the growing importance of this type of financial support. Furthermore, remittance flows frequently play a counter-cyclical role, which means that they remain stable and continue to provide vital support to families in recipient countries even during economic downturns.
More than half of all remittances are sent to rural households, which house 75 percent of the world's poor and food-insecure people. These households rely heavily on remittances to improve their livelihoods, increase their resilience, and achieve their SDGs (Sustainable Development Goals). Globally, cumulative remittance flows to rural areas are expected to reach a staggering US$3 trillion over the next five years.
Around 75% of remittances are used to cover basic human needs such as food, medical expenses, school fees, and housing costs, demonstrating the critical role that remittances play in meeting basic human needs. Migrant workers may send more money home during the times of crisis to help their families cover crop losses or respond to emergencies.
The remaining 25% of remittances, totaling more than $150 billion per year, can be saved or invested in income-generating activities and asset-building ventures. These funds have the potential to create job opportunities and stimulate economic growth, highlighting the significant impact that remittances can have on recipient countries' economic development.
Remittances are a critical driver of socioeconomic growth and transformation in over 70 countries around the world, particularly in rural areas. However, the high remittance costs make it difficult for many migrant workers and their families. To address this issue, blockchain, money transfer service providers and mobile money offer promising solutions that may help reduce costs and improve the efficiency of fund transfers. Fees and currency conversions currently consume an average of 6% of the total amount sent, which is double the SDG target of 3%.
Migrant workers contribute significantly to achieving the SDGs by sending remittances and investing in their home countries. So while sending money online you need to be very careful about exchange rates. We at Teeparam provide highest exchange rates, so you can send money to Sri Lanka at low remittance fees. Also the immigrant workers contribute considerably to eradicating poverty (SDG 1) and hunger (SDG 2), promoting good health (SDG 3), quality education (SDG 4), safe drinking water and sanitation (SDG 6), decent work and economic growth (SDG 8), and reducing inequalities (SDG 10).
These contributions are acknowledged in Goal 20 of the Global Compact on Safe, Orderly, and Regular Migration, which the United Nations General Assembly adopted in December 2018. Strategic partnerships are critical for advancing remittance progress. Collaborations between public and private sector stakeholders have reduced remittance transfer costs and increased access to financial services for migrants and their families.
Several factors, including the widespread adoption of digital technologies by migrant workers and their families, contribute to the resilience of remittance flows. Mobile transfer services, in particular, have grown in popularity, allowing users to send and receive small sums via mobile phone without needing a bank account.
The amount of money sent via mobile transfer increased by an impressive 65 percent in 2020 to reach US$12.7 billion, and this figure is expected to rise to US$16 billion in 2021. This trend demonstrates how digital technologies have the potential to revolutionize the remittance industry and have a more significant impact on global financial systems.
Online Remittances markets could be fundamentally transformed by leveraging innovative financial services such as mobile money and blockchain. It is estimated that migrant workers will send back a staggering US$5.4 trillion to their communities of origin in developing countries over the next decade, with approximately US$1.5 trillion of that being saved or invested.
Remittances are critical to the economies of many countries around the world. The benefits of these financial inflows are apparent, ranging from poverty alleviation to improved access to healthcare and education. It help to reduce reliance on foreign aid and stimulate economic growth by providing a stable source of income. As a result, policymakers and financial institutions must continue to support and facilitate remittance flows in order to maximize their positive impact for the benefit of all.