INTERVIEW: Remittances for development

Nahla Abul-Ezz, Sunday 21 Nov 2021

Financial remittances from abroad can enhance economic growth and promote development in the Arab world, Secretary-General of the Union of Arab Banks Wissam Fattouh tells Al-Ahram Weekly.

 Wissam Fattouh
Union of Arab Banks (UAB) Secretary General Wissam Fattouh

The Covid-19 pandemic failed to make a sharp dent in the financial remittances the Arab world received from abroad in 2020. According to the World Bank, remittances to the region came to $58 billion in 2020, down from $61.7 billion a year earlier.

The 10 largest labour-exporting countries in the Arab world are Algeria, Djibouti, Egypt, Jordan, Iraq, Lebanon, Morocco, Sudan, Tunisia, and Palestine, according to Wessam Fattouh, secretary-general of the Union of Arab Banks (UAB). In 2020, these countries received total remittances of $54.9 billion from expatriates living or working abroad, marking an increase of 2.7 per cent.

The figure represents 5.7 per cent of the GDP of the 10 countries combined and 94.8 per cent of all remittances to the Arab region.

The growth in remittances is attributed to the strong flows of money transferred to Egypt and Morocco. Remittances to Egypt increased by 10.5 per cent to $29.6 billion in 2020, registering a rise for the fifth year in a row. Remittances to Morocco and Tunisia also increased.

Remittances to Sudan, Algeria, and Palestine decreased by more than five per cent and to Djibouti, Lebanon, Iraq, and Jordan by over 10 per cent.

Remittances to the Arab region are expected to grow in 2021 by only 2.6 per cent due to limited growth in the Eurozone and weak cash outflows from the Gulf Cooperation Council (GCC) countries. The impact of the coronavirus on this year’s informal remittances is unclear, but indications suggest that formal and informal cash flows are bigger than the official figures.

Within the region itself, Egypt receives the lion’s share of money transferred from neighbouring countries, especially the GCC. Remittances to Egypt from the Arab countries recorded 83.3 per cent of the total in 2017, with 72.6 per cent coming from the GCC. Saudi Arabia was in first place with 38.7 per cent of the total.

“Egypt received 53.9 per cent of total remittances to the Arab world in 2020. In second place came Morocco, but its share dropped from 19.8 per cent in 2011 to 13.5 per cent in 2020,” Fattouh said.

“Lebanon has the third spot,” he said, adding that the economic and financial crises in Lebanon, coupled with the depreciation of its currency and the decrease in oil prices, have contributed to a drop in remittances from Lebanese expatriates working in the GCC.

Fattouh said that remittances were an important economic indicator when compared to GDP, saying that they ranged from 0.34 per cent of GDP in Iraq to 15.2 per cent in Lebanon. Over the past 10 years, Lebanon has recorded the largest remittances-to-GDP ratio in the region, with remittances making up 14.9 per cent of GDP from 2011 to 2020. It is followed by Jordan and Palestine.

The increase in remittances-to-GDP ratio had increased slightly in Egypt, Lebanon, Morocco, Palestine, Sudan, and Tunisia in 2020, Fattouh said. Despite the coronavirus pandemic, they had proved to be a flexible factor, though fluctuating exchange rates, more felt during crises, could also affect the flow of remittances.

According to the World Bank, in 2019 the Arab region received remittances of $61.7 billion, equivalent to 2.2 per cent of the Arab world’s GDP. It had received $33.5 billion in foreign direct investment (FDI), or 1.2 per cent of GDP, and $31.6 billion in official development assistance, or 1.1 per cent of GDP.

This means that remittances outweigh FDI and official development assistance in the Arab countries, even if they cannot be regarded as a substitute for these other sources of income due to their different nature and purpose.

But they can represent a solid base for promoting human development, financial inclusion, and investment in production capacity, Fattouh said. In many Arab countries, they are a more important source of funds than FDI and official development assistance, acting to finance economic growth and alleviate poverty.

Despite the large sums that Arab labour-exporting countries receive in remittances, there are still obstacles that limit their use for household consumption and their role in sustainable economic, social, and human development, Fattouh said.

These include the absence of national strategies for the use of remittances in development, the relative weakness of the financial infrastructure associated with remittances, and the lack of information about the actual volume of them, especially through informal channels.

Policies could be introduced that would promote the use of remittances to finance development, Fattouh said, suggesting increasing the information about them available on databases. The central banks and statistical authorities of the Arab countries should also develop a more comprehensive understanding of the volume of formal and informal remittance flows.

Fattouh said it was vital to learn from the experiences of countries that use remittances for development purposes. A main target of governments and central banks should be to regulate the transfer of remittances through the banking system and to introduce tax and other incentives for the sending or receiving parties such that remittances can be used for development.

It was also important to reinforce the link between remittances and financial inclusion, Fattouh said. A weak or insecure banking system, especially in rural areas, would lead to the increased reliance on informal channels for transferring money, he added.

Greater financial inclusion in low-income and rural areas would boost the confidence of clients in formal financial channels, leading to increased economic development, he concluded.

*A version of this article appears in print in the 18 November, 2021 edition of Al-Ahram Weekly

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