Low oil prices hit flow of remittances from GCC

Low oil prices are continuing to hit remittance flows from the GCC and Russia.

As low oil prices continued to hit remittance flows from the GCC and Russia, India, the world's largest remittance recipient in 2015, is to record a five per cent drop in remittance to $65.5 billion in 2016, the World Bank has said in a report.

However, despite the drop, India, which attracted about $69 billion in remittances in 2015, is likely to stay at the top as the world's largest remittance recipient, closely followed by China at $65.2 billion, the bank said.

"In 2016, remittance flows are expected to decline by five per cent in India and 3.5 per cent in Bangladesh, whereas they are expected to grow by 5.1 per cent in Pakistan - which is positioned as the top fifth recipient - to $20.3 billion in 2016," said the report.

Overall, remittances to South Asia are expected to decline by 2.3 per cent in 2016, following a 1.6 per cent decline in 2015 due to weak economic growth in remittances-source countries and cyclic low oil prices, the World Bank said.

"Remittances from the GCC countries continued to decline due to lower oil prices and labour market 'nationalisation' policies in Saudi Arabia," the bank said.

In addition, structural factors have also played a role in dampening remittances growth. Anti-money laundering efforts have prompted banks to close down accounts of money transfer operators, diverting activity to informal channels, it added.

In 2016, remittance flows to low and middle-income countries, or LMICs, are projected to reach $442 billion, marking an increase of 0.8 per cent over 2015. "Against a backdrop of tepid global growth, remittance flows to LMICs seem to have entered a 'new normal' of slow growth," the report said.

The modest recovery in 2016 is largely driven by the increase in remittance flows to Latin America and the Caribbean on the back of a stronger economy in the US; by contrast, remittance flows to all other developing regions either declined or recorded a deceleration in growth, the bank said.

"Remittances continue to be an important component of the global economy, surpassing international aid. However this 'new normal' of weak growth in remittances could present challenges for millions of families that rely heavily on these flows. This, in turn, can seriously impact the economies of many countries, bringing on a new set of challenges to economic growth," said Augusto Lopez-Claros, director of the World Bank's Global Indicators Group.

Other top remittance recipient countries include the Philippines at $29.1 billion, Mexico at $28.1 billion, Nigeria at $20 billion, Egypt at $18.4 billion, Bangladesh at $14.9 billion, Vietnam at $13.4 billion and Indonesia at $9.8 billion.

"More worrisome are structural factors such as de-risking by commercial banks, the labour market 'nationalisation' policies in some GCC countries [that discourage demand for migrant workers] and exchange controls in many countries faced with adverse balance of payments and falling international reserves. Exchange controls in Egypt, Nigeria, Sudan and Venezuela have increased black market premiums on exchange rates, encouraging a diversion of remittances to unrecorded channels. De-risking, the closing down of bank accounts of money transfer operators due to anti-money laundering regulatory risks, has prompted many international banks to close correspondent bank accounts of money transfer operators, disrupting remittance flows," the World Bank said.

Remittances to the Middle East and North Africa region are expected to increase by 1.5 per cent in 2016 due to a low-base effect given the 5.7 per cent decline in 2015. However, it is expected that remittances from the GCC countries would decline. Egypt, Jordan and Yemen, large recipients of remittances, would be impacted the most. In Egypt, the largest remittance recipient in the region, remittance flows through the formal channels are impacted by further depreciation of the Egyptian pound and emergence of a black market exchange rate premium.

- issacjohn@khaleejtimes.com

Issac John

issacjohn@khaleejtimes.com