If you are unfamiliar with the concept of remittances, consider this your introduction to a crucial form of support for many individuals worldwide. Remittances, as defined by the World Bank, refer to a portion of the earnings that migrant workers send back to their families in their home countries. In essence, it involves the transfer of money by immigrants or migrants residing in foreign countries to their families back home. For instance, a person from Mexico living in the U.S. sending financial support to their family in Mexico.
Migrants and immigrants constitute significant populations in developed nations globally. Many of these individuals relocate from developing to developed countries in search of better economic prospects, thereby sending money back to their families in their countries of origin.
In numerous developing countries, remittances play a vital role in the economy, accounting for a substantial percentage of the GDP, ranging from 10 percent to over 30 percent. These financial inflows act as an economic catalyst for many less affluent nations, playing a pivotal role in preventing further economic decline. Remittances are utilized for various purposes, including settling family debts, investing in infrastructure, and providing general family support and maintenance.
In countries like Ghana, characterized by high unemployment rates, remittances play a crucial role in supporting unemployed family members who would otherwise face severe financial challenges. Additionally, remittances contribute to the establishment of small businesses and micro-enterprises, paving the way for economic self-sufficiency and long-term economic growth, thereby benefiting the local economy.
Remittance transactions can be facilitated through financial institutions or money transfer agencies such as Western Union and MoneyGram, primarily through electronic transfers. Alternatively, individuals may physically carry funds to their home countries, subject to declaration requirements for larger sums to prevent potential confiscation by Customs authorities.
Contrary to common belief, remittances do not solely flow from affluent to impoverished nations; they can occur in various directions. The World Bank projects a growth of over 3% in remittances by 2024, amounting to $887 billion, surpassing the GDP of countries like Switzerland, Poland, Argentina, Thailand, and Egypt. Notably, the United States remains the largest source of remittances globally, with countries like India, Mexico, China, the Philippines, and Egypt being the top recipients.
While India leads in remittance receipts, with over $100 billion in 2022, this amount represents only 2.9% of its GDP for that year. In contrast, low and middle-income countries heavily rely on remittances to bolster their economies significantly, with over 25 countries seeing remittances contribute to more than 15% of their GDP in 2022.
Several countries heavily depend on remittances for economic sustenance, with nations like Tonga, Lebanon, Samoa, and Tajikistan relying on these financial inflows for nearly half of their GDP. These countries often have a large diaspora working abroad, sending money back to support their families and contribute to their nations’ economic growth.
For many nations, remittances play a crucial role in economic development and growth. As an immigrant myself, I can attest to the vital importance of remittances for families and individuals who rely on these funds for their daily sustenance and well-being.
— Kojo Quartey is president of Monroe County Community College and an economist. He may be reached at .