Remittances to Middle East’s low-income countries to grow at fastest pace in 2024

Remittances to low-and middle-income countries in the Middle East and North Africa are expected to rise at the fastest pace globally this year despite a sharp drop in 2023 amid geopolitical rifts and weaker economic growth, the World Bank has said.

The flows to the Mena region, home to some of the world’s biggest oil exporters as well as crude import-dependent nations, are set to grow by 4.3 per cent to $58 billion in 2024 and further strengthen to $61 billion, a 5.5 per cent annual estimated growth in 2025, the World Bank said in its latest migration and development brief on Wednesday.

A recovery in remittances to Egypt, the biggest North African economy and the Arab World’s most populous nation, will underpin the bounce back for Mena flows this year.

The devaluation of the Egyptian pound, significant investments from the UAE under the $35-billion Ras El Hekma deal, and an $8 billion agreement with the International Monetary Fund are likely to trigger increased inflow of portfolio investments and remittances from workers abroad this year, the World Bank said.

In the occupied West Bank and Gaza, where remittances account for about 19 per cent of gross domestic product, flows dropped significantly amid the Israel-Gaza war that has decimated its economy. However, a “strong influx of remittances may be expected later this year as Palestinians may need a revamped payment system”, the World Bank said.

The remittances outlook for the wider Mena region is “differentiated across regional subgroups, depending on dominant host countries, the degree of exposure to higher energy [and] food prices, and fiscal and external financial difficulties,” the multilateral lender added.

Remittances have been the largest and relatively most steady source of external resource flows for the region, outstripping the sum of foreign direct investment and official development assistance since 2010, according to World Bank data.

Last year, remittance inflows were more than twice the sum of these flows to the region, though FDI inflows recorded sharp drops last year.

Though economies in the region are expected to grow at a sharper pace than last year, downside risks remain including geopolitical uncertainties amid the war in Gaza which is threatening to escalate into a regional conflict.

With already significant fiscal and current account deficits in oil-importing nations that have created external financing concerns, remittances are likely to remain a vital financing source for the region in the near and medium term.

“The negative impacts of the conflict in the Middle East worsened the financial health of these already fragile economies. Remittances to Jordan fell modestly to $4.5 billion in 2023, which represented 9 per cent of the country’s GDP,” the World Bank said.

Last year, the flow of remittances to the poor and middle-income countries in Mena, fell by about 15 per cent, the steepest drop globally, to $55 billion.

The decline, which accentuated the effect of a 3.2 per cent decrease in 2022, was predominantly driven by a 31 per cent slump in remittances to Egypt to $19.5 billion.

“It is likely that remittances have been diverted towards unofficial channels given the wide gap between exchange rates in the official and parallel foreign exchange markets,” the World Bank said.

Last year, Egypt faced a severe foreign currency crisis due to the fixed exchange system and overvalued local currency market. That led to the emergence of a parallel market, where 70 Egyptian pounds traded against 1 US dollar at one point.

The disparity between the official rates and the parallel market led to a significant cut in official remittances from Egyptian residents.

Globally, flows to low- and middle-income countries moderated last year, after strong growth in 2022, reaching $656 billion. The modest 0.7 per cent growth rate reflected large variances in regional growth, however, remittances surpassed both FDI and official development assistance globally.

The top five recipient countries for remittances last year were India, with an estimated inflow of $120 billion, followed by Mexico ($66 billion), China ($50 billion), the Philippines ($39 billion), and Pakistan ($27 billion).

The World Bank expects remittances to low-end-middle-income nations to grow at a faster pace of 2.3 per cent this year.

“Potential downside risks to these projections include weaker than expected economic growth in high-income migrant-hosting countries and volatility in oil prices and currency exchange rates,” the World Bank said.