Based on the trajectory of economic activities in many large, migrant‐hosting countries, especially the United States, European countries, and the Gulf Cooperation Council (GCC) countries, remittance flows to Low- and Middle-Income Countries are expected to register a decline of 7.2 percent to $508 billion in 2020, followed by a further decline of 7.5 percent to $470 billion in 2021.
The projected decline in remittances will be the steepest in recent history, certainly steeper than the decline (less than 5 percent) recorded during the global recession of 2009.
This outlook for remittances indicates a more gradual but more prolonged decline (continuing into 2021) than our April outlook (see World Bank 2020c), which forecast a sharper decline in 2020 followed by a modest recovery in 2021.
Despite the projected decline, the importance of remittances as a source of external financing for the LMICs is expected to increase further in 2020.
Remittances flows to LMICs touched a record high of $548 billion in 2019, larger than foreign direct investment (FDI) flows ($534 billion) and overseas development assistance (ODA, around $166 billion) (figure 1.6).
The gap between remittance flows and FDI is expected to widen further as the decline in FDI is expected to be sharper (box 1.2).
According to these projections, in 2020, in current US dollar terms, the top remittance recipient countries are expected to be India, China, Mexico, the Philippines, and Egypt, unchanged from 2019). As a share of GDP for 2020, the top five recipients would be smaller economies, including Tonga, Haiti, Lebanon, South Sudan, and Tajikistan.
According to the World Bank, the foremost factor driving the decline in remittances in 2020 and 2021 is weak economic growth and employment situation in large migrant‐hosting countries such as the United States and Europe.
A second factor affecting remittance flows is weak oil price. The economies of GCC countries and Russia—major sources of remittances to South Asia, South‐East Asia and Central Asia—are highly dependent on oil price.
Outward remittances from Russia seem to have a direct correlation with cyclical movements in oil price. In the case of Saudi Arabia, the correlation is less visible at a quarterly frequency, but the long‐term effects are present; a continued weakness in oil price has affected economic activities and hence employment of foreign workers, and outward remittances have been falling since 2015.
The World Bank notes that a more structural factor in the case of Saudi Arabia and other GCC countries is a shift in their employment policies that favor employment of native‐born workers. In the medium term, outward remittance flows from the GCC countries are unlikely to increase significantly.