Dependency on remittances

Dependency on remittances is mostly measured as remittances to gross domestic product (GDP). However, it is also worthwhile to examine remittances in comparison to other sources of foreign income, such as FDI, official development assistance (ODA) and exports. Even though a country’s ratio of remittances to GDP may be relatively low, it can still depend on remittances as a source of foreign income in cases in which a large proportion of GDP is domestically generated.

In 2010, Nepal, with remittances amounting to 22.1 per cent of GDP, was the most remittance-dependent country in South and South-West Asia, followed by Bangladesh, with remittances amounting to 10.8 per cent of GDP. At the opposite end, countries in the subregion least dependent on remittances in 2010 were Bhutan (0.32 per cent of GDP), Maldives (0.28 per cent of GDP) and Turkey (0.12 per cent of GDP) (figure 3).

The degree of remittance dependence has fluctuated in the subregion and varies among countries. The most dynamic change occurred in Nepal. During the 1990s, remittances only made up between 1 and 2 per cent of GDP. This figure increased dramatically after 2002, and by 2009, it had risen to almost 24 per cent. In another example, Pakistan was the largest remittance-recipient economy as a proportion to GDP in the subregion during the 1980s, peaking at 10.3 per cent in 1983. The importance of remittances then decreased to between 1 and 3 per cent of GDP during the 1990s, but picked up again after 2001, mainly due to the rapid increase of nominal remittance receipts. Turkey was the subregion’s third largest remittance-receiver in proportion to GDP in the early 1980s, but the proportion decreased to only 0.16 per cent of GDP in 2009 (figure 4).

Nepal’s dependence on remittances is also reflected in other indicators. It is the only country in subregion where remittances exceed export revenues. In 2010, remittances were almost twice as high as the country’s export revenues and the country received 39 times more in remittances than FDI inflows. In 2009, the country received 3.8 times more remittances than ODA receipts (World Bank 2011).

For many countries in the subregion, remittances serve as an important source of foreign exchange. This was especially true during the global financial crisis as remittances proved to be a more stable source of foreign exchange than other potential sources. In 2009, remittances were higher than FDI inflows in Bangladesh, India, Nepal, Pakistan and Sri Lanka, and higher than ODA flows in all countries of the subregion, with the exception of Maldives and Turkey (World Bank 2011).