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Can remittances uplift economies, or are they a double-edged sword?

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February 22, 2025
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Can remittances uplift economies, or are they a double-edged sword?
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According to World Bank estimates, remittances to low- and middle-income countries reached $685 billion in 2024, up from $647 billion in 2023.

With remittances approaching $905 billion globally, it raises the question of whether they are a lifeline for struggling families or a trap that hinders sustainable economic growth.

Countries with the biggest inflows of remittances

Statita said that India received $129 billion in inflows, followed by Mexico and China with $68 billion and $48 billion respectively.

To understand the significance of these data, it’s important to consider their background.

Remittances can be a large share of overall economic performance in smaller and poorer economies.

A notable example of this is Tajikistan, which recorded an astounding 45.4 per cent of GDP remittance inflows in 2024.

The reliance on remittances is a common trend in developing countries, where the home economy relies heavily on expatriate workers for financial stability.

Humanitarian assistance has a considerable impact on economic resilience and sustainability, especially in fragile governments.

Fragile economies and excessive reliance on remittances

Statista data shows that the least resilient economies rely heavily on inbound remittances.

According to the OECD, three of the top four countries with the biggest share of GDP from remittances were also the most fragile.

In Nicaragua, remittances are 27.2 per cent of GDP.

The wave has largely been fueled by persistent economic and political turmoil that has prompted many Nicaraguans to leave, mostly for the US.

Also, in another illustrative example of how changing fragility ratings can have microeconomic consequences through remittances, the situation in Honduras highlights this point.

Honduras was once classified in a “high fragility” context but has since been downgraded evidence of the fluidity of economic stability, but also the changing migratory and remittance dynamics of the region.

According to World Bank data, remittances sent to Venezuela contributed only 3.7% of the GDP in 2024, totalling $3.8 billion, representing an 8.6% increase over 2023 levels.

Why do we have this increasing need for migrant workers?

OECD analysts also partly attribute the increase in remittances to the strong demand for migrant workers in the biggest economies.

To address the prevailing issue of labour scarcity across multiple sectors, numerous nations now find themselves in search of external workforce remedies.

This, in turn, deepens the linkages between the sending and receiving corners of the world, and remittance flows react directly to the demands of labour markets.

In this context, remittances are not just transfers; they are economic activity and indicators of endurance.

They allow families access to spend money on schooling, healthcare, and enterprise, all of which offer upward mobility pathways that could otherwise be inaccessible.

Broader economic context

Advancement in the field of technology has also led to the development of the remittance sector.

Remittances have been a powerful driver of growth in recipient countries, and digital payment platforms have made it easier for migrants to send money home.

While these financial inflows may sustain the economy to some extent, it does prompt further questions about longer-term economic impacts.

Are those economies many of which rely on remittances investing enough in their future? Or will they become too reliant and repeat the vicious circle of economic fragility that may be aggravated by the global economic recession or fluctuation of immigration?

The post Can remittances uplift economies, or are they a double-edged sword? appeared first on Invezz

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