Focus: Remittances

Homeward Bound

Jun. 24, 2019

For many countries, the remittances of their diasporas and migrant worker populations provide a vital contribution to GDP.

The World Bank notes that with moderating global growth, future remittances to low- and middle-income countries will likely see an equally moderate rise of 4% to USD549 billion in 2019. The estimated 2018 growth print for the Middle East and North Africa was 9.1% to USD59 billion, up YoY from 6%. Estimated growth drops to 2.7% in 2019.

In Jordan's case, World Bank data puts the average remittance figure, from 1972 to 2017, at 17.17% of GDP, peaking at 24.9% in 1984. Total remittances of USD3.7 billion in 2017 were flat on 2016 according to the Central Bank of Jordan (CBJ). In fact, Jordanian remittances are the key source of Gross National Income, and of foreign currency inflows, along with commodities, service exports, grants, and foreign aid. Regarding the latter, in June 2018, Saudi Arabia, Kuwait, and the UAE together pledged support to the tune of USD2.5 billion.

The Dilemma
Jordan, with a population of around 10 million, is also host to over 1 million Syrian refugees, while at the same time a nation bereft of resources, and hence reliant on foreign aid. And while it does have phosphate and potash deposits, as with any other commodity, the country is subject to price and demand volatility in global markets. Chronic water shortage, meanwhile, also impacts the economy in terms of agricultural potential. War in Syria, too, over the better part of a decade has dented economic development. And meanwhile, importing 95% of its energy needs, the import bill has continued to spiral to unmanageable levels as oil prices rally.

Wider Effects of Remittances
Remittances, then, are effectively a force for future economic survival, let alone social welfare. A force numbering over 750,000 Jordanians work abroad, primarily to improve the livelihood of loved ones back home. Roughly 70% of foreign remittances derive from the GCC, with the remainder from the US and Europe. The 2017 figure exceeded USD3.7 billion. And by CBJ figures for January 2018, global remittances to Jordan had climbed 4% YoY. Yet as many of the 750,000 Jordanian expats reside within the GCC—around 300,000 in Saudi Arabia and 200,000 in the UAE—the new low oil price paradigm, plus local initiatives such as Saudization, have notably curbed remittance levels.
Official data indicates that remittances also better enable local populations to save for the future, which, again, feeds into the wider economy. This was also the conclusion of a Jordan Strategy Forum (JSF) report titled “The Economics of Jordanian Remittances: Some Issues We Should Be Happy About and Enhance," issued in March 2018. Remittances were calculated to have a positive effect on bank deposits of 8.6% growth per a 5% rise in remittances. It seems that a 5% rise in remittances has its reflection in a 7.7% increase in GDP and 4.9% increase in GDP per capita. Anticipated remittances also foster the availability of bank credit to the private sector, registering an 8% rise with every 5% growth. However, a 5% rise in real remittances translates into real import growth of 8.6%. The obvious conclusion here is that what is sent back home is spent on durable imported items, which in turn widens the trade deficit.

A Better Remittance Regime Required
Many expats closely monitor the political and economic condition of their home country before sending funds and to determine in what amounts to do so. In light of this, the JSF report urged the authorities to fast-track policy related to Jordanian expatriates. Specifically, the JSF urged the government to lower the cost of transferring remittances to the Kingdom to raise their inflow and curb unofficial remittances. While hard to gauge accurately, some studies have put unregistered remittances at as high as 60% above the registered level. And with such a burden resting on registered remittances, economists have recommended public sector initiatives to stimulate greater investment in Jordan by its citizens residing abroad. The suggestion, too, is that expats, particularly the business class, be more closely canvassed for their opinions on economic matters.
In short, remittances, an essential economic component for Jordan, will ever face the challenge of more tempting investment addresses elsewhere abroad.