Syllabus :GS 3/Economy
In News
- India is the largest recipient of remittances in 2024, with an estimated inflow of $129 billion, followed by Mexico, China, Philippines, and Pakistan.
| Do you know ? – Remittances refer to the money sent by individuals working abroad back to their families and communities in their home country. – These funds are typically transferred through banks, online platforms, or money transfer services. |
Growth in Remittances
- The growth rate of remittances in 2024 is estimated at 5.8%, up from 1.2% in 2023.
- Official remittances to low- and middle-income countries (LMICs) are expected to reach $685 billion in 2024.
- South Asia is expected to see the highest increase in remittances (11.8%), driven by strong flows to India, Pakistan, and Bangladesh.
- Remittances continue to outpace other financial flows, including Foreign Direct Investment (FDI).
- FDI has declined by 41% over the past decade, while remittances have increased by 57%.
- Key Driver:The recovery of job markets in high-income OECD countries, especially the United States, has been the key driver, with foreign-born worker employment increasing by 11% above pre-pandemic levels.
- This recovery has particularly boosted remittances to Latin America and the Caribbean.
Importance of Remittances
- Stabilize the national economy : Remittances contribute to the GDP of many developing countries, providing foreign currency that helps stabilize the national economy and balance of payments.
- Poverty Alleviation: They provide a stable source of income for millions of households, supporting daily living expenses, education, healthcare, and housing.
- Development and Investment:Remittances often fund small businesses, agricultural activities, and infrastructure projects, fostering local economic development and job creation.
- Cultural Exchange: Migrant workers often maintain strong ties with their home countries, contributing to cultural exchange and strengthening diaspora connections.
Challenges
- High Transaction Costs: Despite technological advancements, the cost of sending remittances remains high in some corridors, reducing the amount received by beneficiaries.
- Dependence on Remittances: Over-reliance on remittances can create economic vulnerabilities, with countries becoming dependent on external funds rather than developing sustainable local economies.
- Regulatory Barriers: Stringent financial regulations and anti-money laundering measures can complicate and delay remittance transfers.
Conclusion and Way Forward
- Remittances are a lifeline for millions of families and a significant contributor to global economic stability and development. While challenges remain, ongoing innovations in financial technology and efforts to reduce transaction costs hold promise for enhancing the efficiency and impact of remittances.
- Migration pressures, driven by demographic trends, income gaps, and climate change, are expected to continue driving remittance growth.
- Countries need to leverage remittances for poverty reduction, financing health and education, financial inclusion, and improving capital market access for both state and non-state enterprises.
Source :BS