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8 Countries that rely the most on remittances

December 13th, 2019

Countries That Rely on Remittances

Remittances play a significant role in the economies of some countries because of their significant impact on overall growth. Economies in developed countries are usually driven by public expenditure, exports, and business investment while developing nations tend to rely heavily on money sent home by expats. 

How do remittances contribute to development?

Empirical evidence collected by research and surveys indicates that remittances do contribute to the development and economic growth of a country. The impact of remittances lead to consumption, savings, and investment. In many countries, remittances often prove to be the catalyst that drives financial development.

Let us see how remittances contribute to the development of remittance-dependent countries.

  • Remittances uplift families in developing countries and are less susceptible to wastage or corruption compared to foreign aid. Data collected from Asian countries between 1981 and 2014 suggests that a 1% increase in GDP can lead to a 22% drop in poverty. 
  • Remittances increase a country’s Gross National Income (GNI) and improve the purchasing power of its citizens. For instance, Egyptian expats working in Saudi Arabia contribute a significant source of foreign currency to the economy of their homeland.
  • Remittances fuel a valuable source of foreign savings in less financially developed nations – the most significant source of foreign exchange in Mexico is remittances.
  • Remittances often provide the funding needed by startups in countries with fragile economies. For example, according to the Department of International Development, United Kingdom (DFID UK), almost 80% of startup capital for businesses in Somalia is funded by remittances.

Countries that rely the most on remittances

The World Bank, which tracks global remittance data, monitors the effect of international money transfers by comparing a country’s inward remittances with its Gross Domestic Product (GDP) – a universally recognised indicator of growth that measures the value of goods and services produced by a country.

Also read: Remittances Matter: Fundamental Contribution of Migrant Workers

Here are the top eight countries that depend on remittances, according to the World Bank.

1. Tonga

As of date, Tonga tops the list of remittance-dependent countries. Remittances account for 38.5% of Tonga’s GDP. Owing to a lack of world-class infrastructure and the need for better income sources, nearly half of the Tongan population lives overseas, primarily in the US, Australia, and New Zealand. Consequently, most remittances sent home are from Tongans living in these three countries.

2. Haiti

Haiti is a leading remittance recipient, and 34.3% of its GDP comprises money transfers from abroad. The Haitian diaspora is spread all over the world, with nearly 22% of its population residing overseas. The US, Cuba, the Dominican Republic, and Canada have a sizeable population of expats from Haiti and these countries account for most of the remittances flowing back into Haiti.

3. Nepal

Nepal comes third on our list, with remittances making up 29.9% of this Himalayan nation’s GDP. About one-tenth of Nepal’s population work overseas as there are few economic opportunities in the country. The greatest inflows come from Qatar, closely followed by Saudi Arabia. Nepalese workers in neighbouring India also send a significant amount of money home.

4. Tajikistan

Ranking fourth on our list is former Soviet state Tajikistan with inward remittances constituting 29.7% of the GDP. A little over 6% of the country’s population lives outside its borders, with the vast majority in Russia. As you might expect, Russia accounts for most of the remittances flowing back into Tajikistan (more than $1.7 billion).

5. Kyrgyz Republic

Another former Soviet state, the Kyrgyz Republic, closely follows Tajikistan with remittances accounting for 29.6% of its GDP. Most people in the Kyrgyz Republic choose to migrate in search of better opportunities abroad. Nearly 9% of the country’s population has moved overseas, with the majority ending up in Russia. Expats in Russia contribute majorly through remittances – just short of $1.3 billion. 

6. Honduras

The Central American Republic of Honduras is placed sixth on this list. Remittances account for 21.4% of the country’s GDP. Many Hondurans reside overseas, with close to 1 million (or 15% of the country’s domestic population) residing in the US alone. As a result, most of the remittances received by Honduras come from the US, closely followed by Spain. Money sent home from the US is a much-needed lifeline for many Honduran families.

7. El Salvador

The smallest and most densely populated country in Central America, El Salvador depends a lot on cross border remittances, which account for 20.8% of its GDP. Remittances play a pivotal part in uplifting families out of the clutches of poverty in El Salvador. As with Tonga, nearly half the population (49.47%) of El Salvador reside in foreign lands, with the majority in the US. Inevitably, the US is responsible for a huge chunk of remittances flowing into the country (more than $5 billion).

8. Comoros

The sovereign nation of Comoros is the eighth and final entry on this list. Remittances account for nearly one-fifth, or 19.3%, of this African nation’s GDP. Approximately 200,000 to 350,000 Comorians live in France – that’s almost 24% to 40% of the total population. As one might imagine, Comorians residing and working in France send the most money to this sparsely populated country. 

Remittances to low- and middle-income countries (LMICs) play a vital part in fostering economic growth and development. Since the mid-1990s, international money transfers have far exceeded official aid and may also overtake foreign direct investment this year. Reports estimate global remittances to LMICs may reach a whopping $551 billion by the end of 2019; heralding good news to countries that rely the most on remittances.

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