A worker displays $100 bills inside a money changer in Manila. The drop in commodity-linked currencies in resource-rich countries has sapped the value of remittances sent home.ROMEO RANOCO/Reuters
Growth in international remittances from migrants to their families in developing countries "slowed considerably" throughout 2015 as the collapse in oil prices hammered the global economy, according to the World Bank.
The slowdown in the growth of remittances last year is the most severe since the financial crisis of 2008 – and could lead to deeper impoverishment, and potentially even instability, in South and Central Asia. The declines are almost entirely attributable to the dramatic crash in oil prices and the resultant decline in commodity-linked currencies in resource-rich countries such as Canada and Russia, which has sapped the value of remittances sent home. But there is also indication that countries in the migrant-dependent Persian Gulf are coming under pressure as oil prices remain low.
"We knew about global economic weakness; we had seen a tendency of the U.S. dollar to strengthen against many economies," says Dilip Ratha, manager of the World Bank's migration and remittances unit. "But the oil price decline … this is the big wild card."
Remittances to the developing world grew by just 0.4 per cent in 2015 – less than World Bank researchers predicted. That compares with 3.2 per cent growth in 2014, 4.9 per cent in 2013 and 11.4 per cent in 2010.
Payments to relatives back home from international migrants working outside of their home countries – whether as farm workers or nannies in North America, domestic help in Hong Kong, or construction workers in the oil-rich states of the Persian Gulf – are an important, but often unnoticed, part of the global economy. The World Bank estimates there are roughly 250 million people, or 3.4 per cent of the world's population, living outside their home countries. The money they send back home, which amounted to $431.6-billion (U.S.) last year, is more than double the value of global foreign aid from richer countries to poorer ones, according to data from the Organization for Economic Co-operation and Development.
The pay of many economic migrants was also under pressure, particularly those flocking to Russia from the post-Soviet states. Remittances to Kyrgyzstan, Tajikistan and Armenia, for instance, fell by about 40 per cent in U.S. dollar terms, as oil and natural gas prices plummeted and the ruble sank.
The depreciation of the euro also hurt the value of remittances flowing to Egypt, Morocco and other countries in North Africa and the Middle East.
Countries across South Asia also rely heavily on remittances, most of which flow in from the millions of their workers in the Gulf states. Pakistan gets nearly 7 per cent of its GDP from international remittances, Sri Lanka receives more than 9 per cent and Nepal gets nearly 30 per cent of its GDP from migrant worker remittances. Many of these countries saw reduced growth in remittance payments in 2015.
Payments to India, the world's largest recipient of remittances, fell by 2.1 per cent in 2015 to $68.9-billion – the first decline since the global financial crisis. However, Mr. Ratha notes that countries such as India and the Philippines have a more diversified stream of remittance and are less vulnerable to economic shocks.
Mr. Ratha said researchers are concerned that if oil prices remain low for much longer, there could be a broader fallout – and perhaps even political problems for governments that can't provide jobs. Central Asian migrants working in Russia, and the millions of Pakistanis, Indians and Nepalese who toil in the oil-soaked economies of the Persian Gulf, are particularly vulnerable to sustained low oil prices.
Mr. Ratha suggests the Gulf states are coming under significant pressure – and there are indications that outward remittances are beginning to slow. In the past, they used to have "a lot of fiscal reserves and they would continue with their growth plan, their infrastructure development plan, and would … keep employment high, but that seems to be changing," Mr. Ratha says. "We're beginning to see subsidies given to companies being withdrawn. That is the main new source of risk that we hadn't seen."