Remittances have a significant influence on the overall growth of a country. They play a vital role in the economics of various nations. Developed economies are often driven by government spending, exports, and business investment, whereas developing countries rely significantly on money returned home by expats. India is one of the world’s largest remittance recipients, with a diaspora of more than 32 million living overseas. These expatriates regularly send money to India and keep the remittance inflows high.
Here, you’ll learn about the top five countries that depend on remittances. But, let’s see what contribution remittances have to the overall growth of a nation.
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Contribution of Remittances to the Growth of a Nation
Empirical data gathered through research and surveys show that remittances significantly contribute to a country’s development and economic progress. The influence of remittances leads to increased consumption, savings, and investment. Remittances are frequently the trigger that propels financial progress in many nations. There is much more to the contribution of the mere act of sending money home.
- Remittances help poor households in developing nations and are less prone to waste and corruption than foreign aid. According to data collected from Asian countries between 1981 and 2020, a 1% rise in GDP might result in a 22% decrease in poverty, which is a great help for developing nations.
- Capital inflows boost a country’s Gross National Income (GNI) and raise residents’ buying power. For example, African expats working in Saudi Arabia contribute considerable foreign cash to their home country’s economy.
- Remittances are a vital source of foreign funds in less developed countries. Remittances are the most crucial source of foreign exchange in Mexico.
- Money transfers are frequently used to support businesses in countries with unstable economies. According to the United Kingdom’s Department for International Development (DFID UK), remittances account for about 80% of startup businesses in Pakistan.
Remittance Inflows – Statistics and Facts
According to World Bank estimates, worldwide remittances are estimated to amount to $702 billion in 2020, decreasing the $719 billion reported in 2019. Of that amount, $540 billion is estimated to have flowed into low and middle-income nations, dropping from $548 billion (-6.1 per cent) the previous year. While total remittance inflows decreased, several countries raised them significantly throughout the crisis.
Top 5 Countries Most Dependent on Remittances
The World Bank, which collects worldwide remittance data, examines the impact of foreign transfers of money by contrasting a country’s inbound remittances to the Gross Domestic Product (GDP) of a country, a globally recognised index of growth that gauges the value of goods and services provided by a government.
Countries that are most dependent upon remittances are as follows:
1. Haiti
Haiti is a significant remittance receiver, with money transfers from overseas accounting for 34.3 per cent of its GDP. The Haitian diaspora is widespread, accounting for about 22 per cent of the country’s population. The United Kingdom, Cuba, the Dominican Republic, and Canada have a sizable Haitian expat population, and these nations account for the majority of remittances pouring back into Haiti.
2. Tonga
Tonga now leads the list of remittance-dependent countries. Remittances make for 38.5 per cent of Tonga’s GDP. Because of a lack of world-class infrastructure and the need for improved revenue sources, over half of Tongans live abroad, particularly in the United Kingdom, Australia, and Canada. As a result, most remittances sent home come from Tongans residing in these three nations.
3. Nepal
Nepal is third on the list, with remittances accounting for 29.9 per cent of the Himalayan country’s GDP. As Nepal has minimal economic prospects, approximately one-tenth of the country’s population works abroad. Qatar has the highest inflows, closely followed by Saudi Arabia. Nepalese employees in neighbouring India also bring home a sizable sum of money.
4. Tajikistan
Tajikistan is ranked fourth on our list, with inbound remittances accounting for 29.7 per cent of GDP. A little more than 6% of the population lives outside the nation, with the great majority residing in Russia. As one might assume, Russia accounts for most remittances, which is more than $1.7 billion, pouring back into Tajikistan.
5. India
According to the World Bank, India, the world’s largest recipient of remittances, received $87 billion in 2021, with the United Kingdom being the greatest supplier, accounting for more than 20% of these monies. Remittances are expected to increase by 3% to $89.6 billion in 2022, indicating a decrease in overall migrant stock as a high share of returnees from Arab nations await their return. Since India is the highest receiver of remittances, about 20% of the economy depends upon remittance inflows in India. Indian diasporas are the world’s largest and continually support the country’s economy by sending money to India from the UK, Europe, Canada, Australia, Switzerland, and other regions.
Why is Remittance Important?
Remittances have held significant significance in the development of countries. International money transfers can help family members who have been separated from their loved ones while also boosting the economy of receiving countries. They can also foster a dependent culture in the recipient nation, limiting labour force participation, encouraging conspicuous expenditure, and impeding economic progress. Some of the major advantages of remittances are:
- Remittances can help unbanked households in disadvantaged rural regions gain access to credit, allow asset accumulation and business ventures, increase financial literacy, and alleviate poverty.
- Remittances have the potential to restrict labour supply and foster a culture of reliance that stifles economic progress.
- Remittances can boost non-tradable goods consumption, raise their costs, strengthen the real exchange rate, and reduce exports, reducing the recipient country’s competitiveness in global markets.
- Remittances, like international migration, can be reduced by increasing anti-immigrant sentiment and tighter enforcement procedures in host nations such as the United Kingdom and several in Europe and the Gulf area.
Best Way to Transfer Money Internationally
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