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Remittances to the Arab Region: Economic, Financial, and Developmental Impact (June, 2016)
Union of Arab Banks Research Department

Executive Summary

Given the disparities in income levels, economic structures, and labor market features among Arab countries, the Arab region is both a major source and a major recipient of remittances. Over the past decade, remittances sent from and to Arab countries have increased progressively, gaining substantial socio-economic importance in the region. With a total migrant population estimated at 24 million, remittance inflows to Arab countries reached $48.8 billion in 2015, while outflows exceeded $105.4 billion in 2014.
Eleven labor-exporting Arab countries, namely Algeria, Djibouti, Egypt, Jordan, Lebanon, Morocco, Sudan, Syria, Tunisia, Palestine, and Yemen are included in this study. In 2015, total remittances received by these countries (excluding Syria) amounted to nearly $47.6 billion, representing 6% of their combined GDP, 94.6% of total remittance inflows to the MENA region, and 97.4% of total remittance inflows to the Arab region. Remittances reached around $19.7 billion in Egypt (40.4% of total remittance inflows), $7.2 billion in Lebanon, $6.4 billion in Morocco, and $3.8 billion in Jordan. In fact, Egypt, Lebanon and Morocco ranked in the Top 20 list of remittance recipients worldwide in 2015.
The decline in oil prices since mid-2014 took a toll on remittance inflows, as a significant proportion of Arab expatriates work and reside in other Arab oil-exporting countries, namely the GCC. Annual growth in remittance inflows witnessed a decline in Egypt from 9.7% in 2014 to a mere 0.7% in 2015 as over 71.5% of remittances sent to Egypt originate from GCC countries. Similarly, remittance inflows to Lebanon decreased by 3.3% in 2015, following a drop of 8.4% in 2014. Remittance inflows to Morocco declined by 7.3% in 2015, the most in the Arab region, mainly due to the deteriorating economic situation in France, Italy, and Spain as 70% of remittances sent to Morocco originates from these 3 countries, and also due to the depreciation of the euro against the dollar.
On the other hand, the top remittance-sending Arab countries are GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE, in addition to Libya. In 2014, total remittances sent from GCC countries from about 29 million foreign workers, amounted to $98.2 billion, representing around 6% of their combined GDP and %93.2 of total remittance outflows from the Arab region. Saudi Arabia ranked second (only behind the United States), UAE 5th, Kuwait 6th , Qatar 10th, and Oman 12th in the Top 20 list of remittance senders worldwide in 2014. Notably, the number of migrant workers as a share of population is the highest globally in the GCC countries of Qatar (91%), the United Arab Emirates (88%) and Kuwait (72%).
Regarding the source of remittance inflows to the Arab region, the United States is the most recurring remittance sending country, in addition to Canada, Saudi Arabia and the UAE. While most Arab nations with large remittance inflows are dependent on GCC countries, the North African countries of Algeria, Morocco and Tunisia are an exception. This is due to the historically strong economic ties between these countries and European countries, especially France, Italy, Belgium, and Germany.
The study affirms that the inflow of remittances is a vital element of macroeconomic stability in labor-exporting Arab countries. In 2015, remittance inflows a percent of GDP reached 17% in Palestine, 16% in Lebanon, and 10% in Jordan. Remittance outflows also constitute a large share of GDP in Arab oil-exporting countries, reaching around 13% in Oman in 2014, 11% in Kuwait, 7% in Bahrain, and approximately 5% in each of Qatar, Saudi Arabia, and the United Arab Emirates. Notably, over the past decade, remittances have surpassed external financial inflows from both foreign direct investments and official development assistance in remittance-receiving Arab countries, and they have proven to be more resilient and even countercyclical amid the regional political turmoil and economic slowdown. In 2014, the Arab region received remittances worth $51 billion (equivalent to 1.8% of Arab GDP), compared to $43 billion of foreign direct investment (1.6% of GDP) and $22 billion of official development assistance (0.8% of GDP). Remittance inflows to the aforementioned 11 Arab labor-exporting countries amounted to $48 billion in 2014 (or 5.6% of their combined GDP), while net FDI inflows reached $16.4 billion (2.0% of GDP) and net ODA received reached $19.0 in 2013 (2.3% of GDP). Along these lines, net FDI inflows to the Arab region declined by 37.8% from around $69 billion to $43 billion over the period 2006-2014, due to political and economic instability which dampened investor confidence. ODA increased slightly from around $18 billion in 2006 to $22 billion in 2013. On the other hand, remittance inflows to Arab countries increased by a hefty 88% from around $26 billion in 2006 to $49 billion in 2014. For example, in Egypt, Jordan and Tunisia, net FDI inflows declined by 52%, 50%, and 69% respectively over the period 2006-2014, while remittance inflows increased by 270%, 34%, and 56%, respectively.
Examining the correlation coefficient between remittances and several macroeconomic variables for each of the 11 remittance-receiving Arab countries, the study shows that overall, there is a low and sometimes negative correlation between remittances and investments, which suggests that remittance inflows are generally not channeled towards prolific local investment in the Arab region. Moreover, there is a very high positive correlation between remittances and both inflation and imports, which suggests that remittance inflows are used mainly in consumption (resulting in an increase in prices), and more specifically, the consumption of imported goods (resulting in an increase in imports). Consequently, the positive impact of remittances on the current account is (at least partially) offset by an increase in imports.
Hence, remittance inflows have a profound stabilizing micro and macro-economic impact on labor-exporting Arab countries. There is solid evidence that remittances have helped many developing and least developed countries in maintaining stability in their current account and balance of payments, ensuring the availability of foreign currency reserves, improving credit worthiness for external borrowing, and fueling aggregate demand. Remittances also play a vital role in expanding the deposit base and bolstering banking sector liquidity, enabling banks to finance both the private and public sectors. However, despite the large amounts of remittances received by labor-exporting Arab countries, several obstacles still limit the use of remittances to household consumption and impede the role of remittances in sustainable economic, human, and social development. These include the absence of national strategies to channel remittances to development, the relatively weak financial infrastructure supporting remittances, the high cost of money transfer to Arab countries, and informational deficiency on the actual size of remittances especially through informal channels.
Consequently, the study culminates in a number of policy recommendations to leverage the role of remittances in economic, human, and social development. In brief, these include reducing informational deficiencies by improving remittance databases and research methodologies of national statistical offices and central banks, promoting the bancarisation of remittances as an important lever for financial inclusion in receiving countries, especially to low-income segments and rural, reducing the cost of money transfer through banks, money transfer companies, and financial services companies in order to promote the use of official money transfer channels, and facilitating the creation and development of legislation that supports the promotion of investment opportunities to the diaspora community.

Table of Contents

I. Overview of Remittances in the Arab Region: Definition, Inflows, and Outflows 5
a.Overview and Definition………………………………………………………………………………………………... 5
b.Remittance Inflows to the Arab Region. 6
c.Remittance Outflows from the Arab Region.. 10

II. The Sources of Remittance Inflows to the Arab Region……………….…………….. 12
a.Algeria, Morocco, Tunisia. 12
b.Egypt….. 13
c.Jordan… 13
d.Lebanon……. 14
e.Top Remittance Corridors Worldwide. .………..14

III. The Economic Role of Remittances in the Arab Region………………………………………….… 26
a.Remittances as a Percentage of GDP in Arab Countries.. 26
b.Remittances vs. Other Sources of External Financial Inflows…. 27
c.The Economic and Financial Impact of Remittances.. 31

IV. The Cost of Money Transfer to Arab Countries and the Role of Banks in Channeling Remittances……………………………………………………………………………………………........................ 36
a.The Cost of Money Transfer to Arab Countries. 36
b.The Role of Banks in Channeling Remittances.. 42
c.The Impact of De-Risking on Remittances to the Arab Region.. 43

V. Policy Recommendations: Optimizing the Role of Remittances in Economic, Human, and Social Development............................................................................................................... 45

References………………………………………………………………………………………………………………………….48


I.Overview of Remittances in the Arab Region: Definition, Inflows, and Outflows

a.Overview and Definition
Given the stark disparities in income levels, economic structures, and labor market features among Arab countries, the Arab region is both a major source and a major recipient of remittances. Over the past decade, remittances sent from and to Arab countries have increased steadily, gaining substantial socio-economic importance in the region. According to the World Bank Migration and Remittances Data, remittances to the Arab region increased from $25.9 billion in 2006 to $48.8 billion in 2015, which represents around 11.3% of overall remittances to developing countries. Likewise, remittances sent from the Arab region surpassed $105.4 billion in 2014, recording a hefty %167.4 increase from $39.4 billion in 2006.

Figure 1: Remittance Inflows to and Outflows from the Arab Region, 2006-2015 (Billion $)


Regarding the definition of remittances, according to the IMF Balance of Payments and International Investment Position Manual (BPM6), the two items in the balance of payments framework that substantively relate to remittances are “compensation of employees” and “personal transfers”, both of which are recorded in the current account.

Personal Remittances = Personal Transfers + Compensation of Employees

 a.Remittance Inflows to the Arab Region

According to the World Bank, remittance inflows to the MENA region reached $50.3 billion in 2015 and are forecasted to exceed $54.5 billion in 2018. With a total migrant population estimated at 24 million[1], remittance inflows to Arab countries in particular have significantly increased over the past ten years. Eleven labor-exporting Arab countries, namely Algeria, Djibouti, Egypt, Jordan, Lebanon, Morocco, Sudan, Syria, Tunisia, Palestine, and Yemen will be included in this study. In 2015, total remittances received by these countries (excluding Syria) amounted to nearly $47.6 billion, representing around 6% of their combined GDP, 94.6% of total remittance inflows to the MENA region, and 97.4% of total remittance inflows to the Arab region. Remittances reached around $19.7 billion in Egypt, $7.2 billion in Lebanon, $6.4 billion in Morocco, $3.8 billion in Jordan, $3.4 billion in Yemen, $2.3 billion in Tunisia, $2.2 billion in Palestine, $2.0 billion in Algeria, $509.4 million in Sudan, and $35.7 million in Djibouti. In fact, Egypt, Lebanon and Morocco ranked in the Top 20 list of remittance recipients worldwide in 2015. Nevertheless, despite the large amounts of remittances received by these labor-exporting Arab countries, three main obstacles still impede the role of remittances in economic, human, and social development. These challenges are the absence of national strategies to channel remittances to development, the relatively weak financial and institutional infrastructure supporting remittances, and the lack of sufficient data on remittances especially through informal channels (Escwa, 2011).

 Table 1: Remittance Inflows to Labor-Exporting Arab Countries (Billion $)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2015 Rank

Algeria

1.61

2.12

2.20

2.06

2.04

1.94

1.94

2.00

2.00

2.00

8

Djibouti

0.03

0.03

0.03

0.03

0.03

0.03

0.03

0.04

0.04

0.04

10

Egypt

5.33

7.66

8.69

7.15

12.45

14.32

19.24

17.83

19.57

19.71

1

Jordan

2.79

3.33

3.51

3.47

3.52

3.37

3.49

3.64

3.74

3.79

4

Lebanon

5.20

5.77

7.18

7.56

6.91

6.91

6.67

8.08

7.40

7.16

2

Morocco

5.45

6.73

6.89

6.27

6.42

7.26

6.51

6.88

6.92

6.42

3

Sudan

0.80

1.00

1.59

1.39

1.10

0.44

0.60

0.62

0.51

0.51

9

Syria

0.80

1.03

1.33

1.35

1.62

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

1.51

1.72

1.98

1.96

2.06

2.00

2.27

2.29

2.35

2.35

6

Palestine

0.46

0.60

0.74

0.76

0.93

1.14

1.74

1.50

2.18

2.21

7

Yemen

1.28

1.32

1.41

1.16

1.53

1.40

3.35

3.34

3.35

3.41

5

Total

25.27

31.30

35.56

33.16

38.62

38.83

45.83

46.23

48.06

47.58

 

Source: Migration and Remittances Data, World Bank, 2016. Retrieved May, 2016.

 Egypt remains the largest Arab remittance-receiving country with a market share of 40.4% of total remittance inflows to the Arab region in 2015, compared to 31.8% in 2010 and 20.6% in 2006.  Lebanon ranks second; however, its share of total remittances declined from 20.1% in 2006 to 17.7% in 2010 and to 14.7% in 2015, mainly due to political instability which diminished investment opportunities and the fall in oil prices, which curbed money transfers of Lebanese expatriates in the GCC. Morocco and Jordan come in the third and fourth place, respectively, also with declining market shares over the same period. Notably, the market shares of Egypt, Palestine, and Yemen of total remittance inflows to the Arab region increased over the period 2006-2015, while it declined in all other remittance-receiving countries.

 Table 2: Market Share of Major Arab Remittance-Receiving Countries (% of Total Arab Region Remittance Inflows)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Algeria

6.22

6.72

6.12

6.12

5.22

4.85

4.11

4.21

4.06

4.10

Djibouti

0.11

0.09

0.08

0.10

0.08

0.08

0.07

0.08

0.07

0.07

Egypt

20.59

24.28

24.16

21.24

31.80

35.79

40.67

37.54

39.72

40.37

Jordan

10.80

10.55

9.76

10.29

8.98

8.42

7.38

7.67

7.59

7.76

Lebanon

20.10

18.29

19.96

22.45

17.65

17.27

14.10

17.02

15.03

14.67

Morocco

21.06

21.34

19.16

18.62

16.40

18.13

13.76

14.49

14.05

13.15

Sudan

3.09

3.17

4.42

4.14

2.81

1.10

1.26

1.30

1.03

1.04

Syria

3.07

3.27

3.68

4.01

4.14

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

5.83

5.44

5.49

5.84

5.27

5.01

4.79

4.82

4.76

4.81

Palestine

1.79

1.90

2.06

2.24

2.37

2.85

3.67

3.16

4.43

4.52

Yemen

4.96

4.19

3.92

3.45

3.90

3.51

7.08

7.04

6.80

6.98

Source: UAB staff calculations based on World Bank data. Retrieved May, 2016.

 Several factors threaten the growth of remittances in the Arab region. Such impediments include the emergence of the de-risking trend amid austere global regulatory standards and sanctions, in addition to new restrictions on movement of labor in the Arab region due to political turmoil, and difficulties in protecting and enforcing migrant’s rights. Moreover, the decline in oil prices since mid-2014 took a toll on remittance inflows, as a significant proportion of Arab expatriates work and reside in other Arab oil-exporting countries, namely the GCC. Annual growth in remittance inflows witnessed a decline in Egypt from 9.7% in 2014 to a mere 0.7% in 2015 as over 71.5% of remittances sent to Egypt originate from GCC countries. Similarly, remittance inflows to Lebanon decreased by 3.3% in 2015, following a drop of 8.4% in 2014. Remittance inflows to Morocco declined by 7.3% in 2015, the most in the Arab region, mainly due to the deteriorating economic situation in France, Italy, and Spain as 70% of remittances sent to Morocco originates from these 3 countries, and also due to the depreciation of the euro against the dollar. Notably, as shown in Figure 2, Palestine witnessed the largest increase in remittance inflows over the past 10 years, as remittances almost tripled, followed by Egypt (269.8%) and Yemen (165.6%).

 Table 3: Annual Percentage Change in Remittance Inflows (%)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Algeria

(21.84)

31.68

3.87

(6.49)

(0.73)

(4.99)

0.00

2.99

0.00

0.00

Djibouti

10.14

0.59

5.89

7.05

0.54

(0.86)

2.80

7.15

0.00

0.00

Egypt

6.22

43.65

13.56

(17.76)

74.18

15.03

34.29

(7.30)

9.74

0.71

Jordan

15.41

19.06

5.53

(1.28)

1.50

(4.24)

3.61

4.39

2.59

1.37

Lebanon

5.64

10.90

24.46

5.26

(8.52)

(0.01)

(3.50)

21.19

(8.42)

(3.26)

Morocco

18.79

23.46

2.43

(9.07)

2.45

12.98

(10.31)

5.74

0.60

(7.29)

Sudan

13.79

24.83

59.11

(12.34)

(21.10)

(59.83)

34.83

3.97

(18.23)

0.59

Syria

(3.40)

29.62

28.59

1.88

20.20

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

8.43

13.62

15.22

(0.63)

5.03

(2.85)

13.03

1.09

2.45

0.00

Palestine

22.66

28.98

23.75

1.96

22.76

23.14

52.14

(13.71)

45.61

1.10

Yemen

0.00

3.03

6.73

(17.76)

31.55

(8.00)

138.69

(0.25)

0.24

1.65

Total

5.50

23.86

13.61

(6.74)

16.48

0.53

18.03

0.87

3.95

(0.98)

Arab Region

5.50

21.85

14.10

(6.45)

16.35

2.18

18.19

0.42

3.72

(0.90)

Source: Authors' calculations based on World Bank data. Retrieved May, 2016.

 Figure 2: Percentage Change in Remittance Inflows to Labor-Exporting Arab Countries over the Past Decade 2006-2015

[1] United Nations Economic Commission for Africa. (2016). Migrant Transfers and Development: Experts study Arab and North African experience. Press Release January, 2016.
In 2015, remittances per capita was highest in Lebanon at around $1,572.9, followed by Jordan ($555.2) and Palestine ($513.8), mainly due to these countries' small population coupled with significant remittance inflows, (Figure 3).

Figure 3: Remittance Inflows per Capita in Labor-Exporting Arab Countries, 2015 ($)


a. Remittance Outflows from the Arab Region

The top remittance-sending Arab countries are GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE, in addition to Libya. In 2014, total remittances sent from GCC countries from about 29 million foreign workers, amounted to $98.2 billion, representing around 6% of their combined GDP and %93.2 of total remittance outflows from the Arab region. Notably, the number of migrant workers as a share of population is the highest globally in the GCC countries of Qatar (91%), the United Arab Emirates (88%) and Kuwait (72%), (World Bank, 2016). Consequently, the Gulf region is one of the largest sources of remittances in the world. In 2014, total remittance outflows from Saudi Arabia exceeded $36.9 billion, $19.3 billion from the UAE, $18.1 billion from Kuwait, $11.2 billion from Bahrain, $10.3 billion from Oman, and $2.4 billion from Bahrain. Moreover, Saudi Arabia ranked second (only behind the United States), UAE 5th, Kuwait 6th , Qatar 10th, and Oman 12th in the Top 20 list of remittance senders worldwide in 2014, while Lebanon ranked 22nd with remittance outflows at $5.6 billion.

 Table 4: Remittance Outflows from Oil-Exporting Arab Countries (Billion $)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2014 Rank

Bahrain

1.53

1.48

1.77

1.39

1.64

2.05

2.07

2.17

2.36

6

Kuwait

3.18

9.76

10.32

11.75

11.86

13.01

15.46

17.71

18.13

3

Libya

0.95

0.76

0.96

1.36

1.61

0.65

1.97

3.20

n.a.

n.a.

Oman

2.79

3.67

5.18

5.32

5.70

7.21

8.09

9.11

10.30

5

Qatar

3.69

4.48

5.38

7.11

8.14

10.44

10.41

11.28

11.23

4

Saudi Arabia

15.96

16.45

21.70

26.47

27.07

28.47

29.49

34.98

36.92

1

UAE

6.07

8.68

9.99

9.53

10.57

11.22

14.40

17.93

19.28

2

Total

34.17

45.29

55.31

62.92

66.59

73.07

81.89

96.38

98.23

 

Source: Migration and Remittances Data, World Bank, 2016. Retrieved May, 2016.

 Remittance outflows from Kuwait more than quadrupled over the period 2006-2014 and outflows from each of Oman, Qatar, and the UAE more than doubled over the same period. Total remittance outflows from the Arab region increased by 167.4% since 2006; however, annual growth witnessed a slowdown in 2014, dampened by the decline in oil prices which began in mid-2014.

Table 5: Annual Percentage Change in Remittance Outflows (%)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2006-2014

Bahrain

25.13

(3.14)

19.67

(21.61)

18.03

24.87

1.19

4.41

9.16

54.45

Kuwait

20.23

206.72

5.72

13.82

0.98

9.68

18.81

14.57

2.36

469.52

Libya*

3.39

(19.34)

26.50

41.15

18.22

(59.60)

203.23

62.32

n.a.

135.07

Oman

23.50

31.62

41.18

2.61

7.29

26.49

12.08

12.61

13.13

269.47

Qatar

22.64

21.48

20.02

32.07

14.57

28.30

(0.30)

8.34

(0.45)

204.33

Saudi Arabia

11.52

3.02

31.92

22.00

2.26

5.19

3.57

18.62

5.55

131.29

UAE

13.03

42.99

15.11

(4.63)

10.86

6.19

28.33

24.55

7.51

217.51

Total

14.92

32.53

22.13

13.76

5.83

9.72

12.08

17.69

1.92

187.44

Arab Region

14.26

25.96

23.09

14.82

3.85

7.94

12.78

16.60

1.91

167.44

Source: Authors' calculations based on World Bank data. Retrieved May, 2016. *Change over the period 2006-2013.

 Remittance outflows from the GCC increased in tandem with a rapid rise in oil prices and non-oil GDP (IMF, 2015). Thus, if the decline in oil prices persists, this can have critical economic spillovers on GCC countries, and hence ramifications on remittance outflows. It should be noted that most migrant workers in the GCC are employed in the non-oil sectors, mainly in construction and trade. Consequently, remittance outflows are much less volatile than oil prices, since GCC countries have accumulated large buffers which enable them to sustain their fiscal spending and support non-oil economy activity. Based on historical trends, a 1% decline in real non-oil GDP in the GCC is estimated to reduce remittance outflows by 0.50%-0.75% annually (IMF, 2015).

The impact of lower oil prices on remittance outflows from the GCC will depend on the pace of fiscal adjustment. Government services and construction are the components of non-oil GDP most strongly associated with remittance outflows. Hence, a slowdown in the growth of spending in these categories, or the introduction of a special tax on remittances – as has been proposed in the GCC – could have a significant impact on remittance flows to the oil-importing and labor-exporting countries in the region (IMF, 2015).

I.The Sources of Remittance Inflows to the Arab Region

 According to the World Bank's Migration and Development Brief, remittances to the MENA region in 2015 totaled around $50 billion. Remittances of Egyptian expatriates were the highest among Arab countries and stood at $19.7 billion, followed by Lebanon at $7.2 billion and Morocco at $6.4 billion. It should be noted that the actual size of remittances is believed to be significantly larger than the recorded amounts due to unrecorded remittances that pass through informal channels.

The data presented below show that within the sample of eleven remittance receiving Arab countries, the United States is the most recurring remittance sending country, with Djibouti being the only country where it does not rank in the top 10 sources of remittances. In 2015, remittances sent from the US to the sample countries amounted to around $30.0 billion. Remittances sent from all GCC countries reached $23.0 billion, $13.8 billion of which from Saudi Arabia alone. In addition, remittances from European countries amounted to around $11.8 billion.

 a. Algeria, Morocco, Tunisia

While most Arab nations with large remittance inflows are dependent on GCC countries, the North African countries of Algeria, Morocco and Tunisia are an exception. This is due to the historically strong economic ties between these countries and European countries, especially France. Remittances from France to Algeria, Morocco, and Tunisia in 2015 amounted to 81.9%, 30.8%, and 58.8% of total remittances, respectively. Remittances from Europe are expected to decrease considerably due to the depreciation of the euro as a result of the economic slowdown in Europe.

Algeria's remittance inflows totaled $2.0 billion in 2015 and were mainly from European countries as they accounted for around 90.1% of total remittances, reaching around $1.8 billion. It is noteworthy that within the top 10 remittance sending countries to Algeria in 2010 and 2015, GCC countries are absent. Similarly, Morocco received 87.0% of its remittances from Europe. Total remittances to Morocco reached around $6.4 billion, with only $46.3 million (0.7%) from Saudi Arabia. As for Tunisia, total remittance inflows in 2015 totaled $2.3 billion with European countries accounting for 85.5% of total remittances. Saudi Arabia and the UAE ranked as fourth and tenth in sending remittances to Tunisia, respectively, totaling $65.5 million. It is noteworthy that in 2010 Tunisia received around 13.5% of total remittances from Arab countries (Libya, Saudi Arabia, and West Bank & Gaza) but that amount has decreased significantly to around 2.8% in 2015. This dramatic drop in remittances from Arab countries is probably due to the uprising that took place in Libya in 2011 as Libyan remittances to Tunisia were previously the third highest, reaching 10.9% of all remittances sent to Tunisia in 2010.

Due to low oil prices and lack of remittances received from GCC countries, Algeria, Morocco and Tunisia can benefit from low oil prices without endangering the amount of remittances they receive. However, as mentioned above, due to their high dependence on European countries for remittances, remittances could be negatively affected due to the depreciation of the euro and the slow economic recovery in Europe.

 b. Egypt

 Egypt, with remittances reaching $19.7 billion in 2015, receives the lion’s share of remittances in the region, and is highly dependent on remittances sent from neighboring Arab countries, especially GCC countries. In 2010, remittances sent from Arab countries to Egypt amounted to 77.2% of total remittances with remittances from GCC countries reaching 46.8% of total remittances. In 2015, total remittances sent from Arab countries increased to 80.6% while the share of GCC remittances sent to Egypt increased considerably and reached 71.5% of total remittances sent. Saudi Arabia was the top remittance sending country in both 2010 and 2015 where it accounted for 27.9% and 38.5% of total remittances sent, respectively. It is worth noting that while Libya was the fourth top remittance sending country to Egypt in 2010, where remittances sent reached $1,098.2 million, around 8.8% of total remittances, it was not one of the top remittance sending countries to Egypt in 2015. This decline in remittances sent from Libya to Egypt is due to the uprising in Libya which has negatively affected the Libyan economy, and forced a considerable number of Egyptian expatriates to leave Libya.

  c. ordan

In 2015, Jordan received the fourth most remittances in the MENA region, with remittances reaching $3.8 billion. The biggest portion of remittances sent to Jordan is from GCC countries, which account for around 71.2% of total remittances sent. This is a considerable increase from remittances sent from GCC countries in 2010, where they only accounted for 27.7% of total remittances. While in 2010 Saudi Arabia and Oman were the only remittance sending GCC countries to Jordan according to the World Bank, all GCC countries were present in the 2015 ranking. This is an indication of the recent five year increase of Jordanian expatriates in GCC countries and the improving economic ties between the country and neighboring GCC countries. However, it is also expected that remittances will be negatively affected by the recent drop in oil prices.  

 It is noteworthy that 44% of remittances received by Jordan in 2010 and 5.8% in 2015 originated from the West Bank and Gaza. Similarly, Jordan was the top remittance sending country to the West Bank and Gaza in 2015 where remittances from Jordan totaled $1,073.5 million, or 48.7% of all remittances received by West Bank and Gaza, followed by Saudi Arabia (16.5%), Lebanon (13.5%), Libya (6.8%), and Syria (5.1%).

  d. Lebanon

Remittances inflows to Lebanon were the second highest among Arab countries and stood at $7.2 billion in 2015, recording a decrease from $7.7 billion in 2010. Lebanon's remittances originate from a wide variety of countries (United States, Australia, as well as African, Arab, and European countries) due to the large Lebanese diaspora residing all around the world. In 2010, Saudi Arabia was the only Arab country in the top 10 remittance sending countries to Lebanon, totaling around $639.8 million. By 2015, that amount more than doubled and Saudi Arabia was the top remittance sending country to Lebanon, accounting for 20% of total remittances received by the country, followed by the United States (16%), and Australia (12%).

 The Lebanese diaspora in many countries are estimated to be more than double the number of Lebanese citizens living in Lebanon. Brazil alone has between 6 and 8 million residents of Lebanese origins, which would explain Brazil being the tenth most remittance sending country to Lebanon in 2010. Brazil's absence in the 2015 data can be explained by the economic downturn and political crisis that the country has been facing recently. 

 e.Top Remittance Corridors Worldwide

It is worth noting that GCC countries are not only top remittance sending countries to other Arab countries, but also to countries around the world. According to the World Bank, the remittance corridor from the United Arab Emirates to India was the fourth largest corridor in the world in 2015 at $13.2 billion, followed by Saudi Arabia's remittance corridor to India, which is the sixth largest globally, at $11 billion in 2015. Kuwait and Qatar are also top remittance sending countries to India at $4.8 billion and $4.2 billion, respectively. Saudi Arabia is also a top remittance corridor to Egypt, Pakistan, Indonesia, Bangladesh, and the Philippines.

Table 6: Source of Remittance Inflow to Algeria, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

France

1,551.99

75.9

1

France

1,638.20

81.91

2

Spain

105.21

5.1

2

Spain

64.02

3.201

3

Canada

65.01

3.2

3

Canada

43.45

2.1725

4

Italy

49.20

2.4

4

Belgium

28.45

1.4225

5

Belgium

37.36

1.8

5

Italy

27.15

1.3575

6

Germany

36.51

1.8

6

United Kingdom

23.39

1.1695

7

United Kingdom

26.62

1.3

7

United States

21.14

1.057

8

Tunisia

16.73

0.8

8

Germany

20.39

1.0195

9

United States

13.25

0.6

9

Morocco

17.23

0.8615

10

Switzerland

12.50

0.6

10

Tunisia

11.50

0.575

 

Other

130.04

6.4

Other

105.08

5.254

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

 Table 7: Source of Remittance Inflow to Djibouti, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

France

18.71

57.8

1

France

18.95

53.2

2

Ethiopia

5.40

16.7

2

Ethiopia

6.03

16.9

3

Canada

1.89

5.8

3

Libya

3.07

8.6

4

United States

1.01

3.1

4

Canada

1.81

5.1

5

United Kingdom

0.91

2.8

5

Kenya

1.26

3.5

6

Egypt

0.85

2.6

6

Egypt

1.17

3.3

7

Belgium

0.35

1.1

7

Sweden

0.84

2.4

8

Germany

0.34

1.1

8

Algeria

0.67

1.9

9

Australia

0.31

1.0

9

Australia

0.42

1.2

10

Netherlands

0.30

0.9

10

Switzerland

0.34

1.0

Other

2.29

7.1

Other

1.09

3.1

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

  Table 8: Source of Remittance Inflow to Egypt, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

Saudi Arabia

3,472.45

27.9

1

Saudi Arabia

7,587.16

38.5

2

Jordan

2,355.89

18.9

2

Kuwait

3,213.44

16.3

3

Kuwait

1,357.37

10.9

3

UAE

1,872.92

9.5

4

Libya

1,098.19

8.8

4

Jordan

1,293.41

6.6

5

UAE

575.95

4.6

5

Qatar

1,056.98

5.4

6

United States

542.52

4.4

6

United States

1,012.82

5.1

7

Qatar

416.66

3.3

7

Italy

556.76

2.8

8

Italy

335.15

2.7

8

Lebanon

502.06

2.5

9

West Bank & Gaza

330.69

2.7

9

Bahrain

359.84

1.8

10

Canada

182.98

1.5

10

Canada

265.37

1.3

Other

1,785.25

14.3

Other

1,989.47

10.1

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

  Table 9: Source of Remittance Inflow to Jordan, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

West Bank & Gaza

1,601.63

44.0

1

Saudi Arabia

1,467.59

38.7

2

Saudi Arabia

941.95

25.9

2

UAE

715.94

18.9

3

United States

470.68

12.9

3

United States

376.05

9.9

4

Germany

96.48

2.7

4

West Bank & Gaza

219.64

5.8

5

Oman

65.13

1.8

5

Qatar

206.68

5.5

6

Canada

53.29

1.5

6

Kuwait

198.20

5.2

7

Egypt

31.02

0.9

7

Libya

82.05

2.2

8

Australia

29.36

0.8

8

Germany

64.78

1.7

9

United Kingdom

24.91

0.7

9

Bahrain

60.07

1.6

10

Italy

21.86

0.6

10

Oman

46.83

1.2

Other

304.26

8.4

Other

350.62

9.3

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

Table 10: Source of Remittance Inflow to Lebanon, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

United States

1,578.15

20.6

1

Saudi Arabia

1,447.36

20

2

Australia

1,110.77

14.5

2

United States

1,149.49

16

3

Canada

1,028.70

13.4

3

Australia

848.64

12

4

Germany

723.06

9.4

4

Germany

783.14

11

5

Saudi Arabia

639.82

8.4

5

Canada

768.64

11

6

France

526.45

6.9

6

France

410.15

6

7

Sweden

288.62

3.8

7

UAE

231.62

3

8

Denmark

182.59

2.4

8

Sweden

223.58

3

9

United Kingdom

181.32

2.4

9

United Kingdom

153.45

2

10

Brazil

166.35

2.2

10

Denmark

112.48

2

Other

1,227.10

16.0

Other

1,034.27

14

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

 Table 11: Source of Remittance Inflow to Morocco, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

France

1,811.96

28.2

1

France

1,976.11

30.8

2

Spain

1,624.35

25.3

2

Spain

1,580.56

24.6

3

Italy

999.69

15.6

3

Italy

878.74

13.7

4

Belgium

383.16

6.0

4

Belgium

437.80

6.8

5

Netherlands

378.32

5.9

5

Netherlands

386.13

6.0

6

Germany

240.30

3.7

6

Germany

273.87

4.3

7

United States

199.75

3.1

7

United States

160.34

2.5

8

Canada

100.71

1.6

8

Canada

100.17

1.6

9

Saudi Arabia

39.76

0.6

9

United Kingdom

48.77

0.8

10

United Kingdom

27.07

0.4

10

Saudi Arabia

46.32

0.7

Other

617.47

9.6

Other

529.51

8.2

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

Table 12: Source of Remittance Inflow to Sudan, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

Saudi Arabia

393.55

35.8

1

Saudi Arabia

206.52

40.5

2

Uganda

145.30

13.2

2

South Sudan

91.70

18.0

3

Yemen

100.23

9.1

3

UAE

68.30

13.4

4

United States

75.56

6.9

4

Chad

32.30

6.3

5

UAE

57.48

5.2

5

Qatar

25.67

5.0

6

Kenya

55.56

5.1

6

Kuwait

20.19

4.0

7

Australia

41.20

3.7

7

United States

8.79

1.7

8

Chad

29.48

2.7

8

Kenya

6.53

1.3

9

Canada

25.45

2.3

9

Ethiopia

6.30

1.2

10

United Kingdom

23.75

2.2

10

Bahrain

5.24

1.0

Other

152.57

13.9

Other

38.00

7.5

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

Table 13: Source of Remittance Inflow to Syria, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

Jordan

517.86

24.91

1

Saudi Arabia

474.33

29.2

2

Kuwait

352.52

16.96

2

Lebanon

281.57

17.4

3

Saudi Arabia

254.63

12.25

3

Jordan

254.03

15.7

4

United States

185.54

8.93

4

Turkey

223.89

13.8

5

Germany

104.57

5.03

5

Kuwait

79.02

4.9

6

West Bank & Gaza

60.80

2.93

6

Iraq

55.75

3.4

7

Libya

58.13

2.80

7

Egypt

45.15

2.8

8

Canada

56.69

2.73

8

United States

36.65

2.3

9

Sweden

50.86

2.45

9

UAE

30.35

1.9

10

France

40.95

1.97

10

Germany

26.69

1.6

Other

395.98

19.05

Other

115.11

7.1

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

Table 14: Source of Remittance Inflow to Tunisia, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

France

988.75

47.92

1

France

1,380.62

58.8

2

Italy

391.56

18.98

2

Italy

394.99

16.8

3

Libya

225.08

10.91

3

Germany

127.33

5.4

4

Germany

123.39

5.98

4

Saudi Arabia

45.08

1.9

5

Saudi Arabia

37.82

1.83

5

Switzerland

41.60

1.8

6

Belgium

37.09

1.80

6

United States

33.83

1.4

7

United States

29.47

1.43

7

Canada

32.65

1.4

8

Canada

28.70

1.39

8

United Kingdom

31.40

1.3

9

Switzerland

22.73

1.10

9

Belgium

29.47

1.3

10

West Bank & Gaza

15.08

0.73

10

UAE

20.43

0.9

Other

163.62

7.93

Other

209.22

8.9

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

Table 15: Source of Remittance Inflow to West Bank & Gaza, 2015

2015

Rank

Country

Remittances Sent (Million $)

% of Total

1

Jordan

1,073.52

48.7

2

Saudi Arabia

363.86

16.5

3

Lebanon

298.69

13.5

4

Libya

150.49

6.8

5

Syria

112.59

5.1

6

Egypt

47.88

2.2

7

UAE

40.46

1.8

8

Algeria

32.99

1.5

9

United States

31.99

1.4

10

Kuwait

11.78

0.5

Other

42.24

1.9

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2015, retrieved May 2016.

 Table 16: Source of Remittance Inflow to Yemen, 2010 vs. 2015

2010

2015

Rank

Country

Remittances Sent (Million $)

% of Total

Rank

Country

Remittances Sent (Million $)

% of Total

1

Saudi Arabia

1,171.05

76.74

1

Saudi Arabia

2,112.63

62.0

2

UAE

104.38

6.84

2

UAE

568.36

16.7

3

United States

101.11

6.63

3

Kuwait

168.47

4.9

4

United Kingdom

25.51

1.67

4

Qatar

160.26

4.7

5

Jordan

17.81

1.17

5

United States

134.31

3.9

6

West Bank & Gaza

7.65

0.50

6

Bahrain

43.42

1.3

7

Germany

4.47

0.29

7

United Kingdom

38.97

1.1

8

Sudan

3.58

0.23

8

Libya

38.59

1.1

9

France

2.94

0.19

9

Egypt

14.94

0.4

10

Canada

2.02

0.13

10

Algeria

8.41

0.2

Other

85.48

5.60

Other

117.54

3.5

Source: World Bank, Migration and Remittances Data, Bilateral Remittances Matrix 2010 – 2015, retrieved May 2016.

 II. The Economic Role of Remittances in the Arab Region

 a. Remittances as a Percentage of GDP in Arab Countries

The inflow of remittances is a vital element of macroeconomic stability in labor-exporting Arab countries. To highlight the economic importance of remittances in relative terms, Table 17 presents these remittances as a percentage of nominal GDP. In 2015, remittances ranged from 1% of GDP in Algeria to around 17% of GDP in Palestine. Notably, Comoros, Palestine, Lebanon and Jordan ranked among the top 25 recipients globally in terms of the share of remittances in GDP in 2014. Over the past 10 years, Lebanon has displayed the largest remittance values relative to the size of its economy with remittances representing around 19% of GDP over the period 2006-2015, followed by Jordan (14 % of GDP) and Palestine (13 % of GDP). In 2015, remittances as a percentage of GDP declined, albeit slightly, in each of Djibouti, Egypt, Jordan, Lebanon, Morocco, Sudan and Yemen, largely due to the drop in oil prices which weakened the income of expats in the GCC and other oil-exporting countries. Remittance outflows also constitute a large share of GDP in Arab oil-exporting countries, reaching around 13% in Oman in 2014, 11% in Kuwait, 7% in Bahrain, and approximately 5% in each of Qatar, Saudi Arabia, and the United Arab Emirates, (see Table 18). 'The staggering amount of remittance outflows from the GCC economies plays a stabilizing role as a tacit monetary policy tool like the open market sale of government bonds' (De et. al, 2015). Conversely, remittances are sent to recipient economies in dollar and not in local currencies, hence remittance outflows also represent foreign currency losses from a country.

 Table 17: Remittance Inflows as a Percentage of Nominal GDP in Labor-Exporting Arab Countries

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Algeria

1.38

1.57

1.29

1.50

1.27

0.97

0.93

0.95

0.94

1.16

Djibouti

3.70

3.38

3.04

3.09

2.89

2.61

2.46

2.45

2.24

2.06

Egypt

4.96

5.87

5.34

3.78

5.69

6.07

7.32

6.56

6.83

5.96

Jordan

18.56

19.44

15.98

14.55

13.31

11.68

11.28

10.84

10.43

10.07

Lebanon

23.87

23.47

24.91

21.51

18.19

17.25

15.44

18.23

16.19

14.00

Morocco

8.30

8.52

7.45

6.75

6.89

7.16

6.62

6.41

6.29

6.22

Sudan

2.24

2.18

2.92

2.62

1.68

0.66

0.95

0.93

0.69

0.61

Syria

2.39

2.55

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

4.39

4.41

4.41

4.52

4.68

4.37

5.02

4.88

4.83

5.38

Palestine

9.44

10.87

11.10

10.39

10.40

10.91

15.42

12.02

17.13

17.32

Yemen

6.72

5.16

4.64

4.08

4.94

4.52

10.45

9.30

9.30

9.24

Total

5.55

5.76

5.79

5.42

5.61

5.09

5.75

5.57

5.56

5.45

Source: UAB staff calculations based on World Bank and IMF data.

Note: Remittances from the World Bank Migration and Remittances data and Nominal GDP 2006-2014 from the World Bank World Development Indicators. 2015 Nominal GDP (excluding Palestine) from IMF World Economic Outlook April 2016.

 Table 18: Remittance Outflows as a Percentage of Nominal GDP in Oil-Exporting Arab Countries

2006

2007

2008

2009

2010

2011

2012

2013

2014

Bahrain

8.27

6.82

6.90

6.06

6.38

7.06

6.74

6.58

6.98

Kuwait

3.13

8.52

7.00

11.09

10.28

8.45

8.88

10.17

11.08

Libya*

1.72

1.13

1.11

2.16

2.15

1.87

2.41

4.88

n.a.

Oman

7.49

8.72

8.51

10.99

9.73

10.62

10.59

11.65

12.59

Qatar

6.06

5.62

4.67

7.27

6.51

6.15

5.47

5.59

5.34

Saudi Arabia

4.24

3.95

4.17

6.17

5.14

4.25

4.02

4.70

4.95

UAE

2.73

3.37

3.17

3.76

3.69

3.22

3.86

4.63

4.83

Total

3.92

4.53

4.35

6.16

5.49

4.96

4.93

5.72

6.00

Source: UAB staff calculations based on World Bank data. Retrieved May, 2016.

 b. Remittances vs. Other Sources of External Financial Inflows

According to the latest available World Bank data, in 2014, the Arab region received remittances worth $51 billion (equivalent to 1.8% of Arab GDP), compared to $43 billion of foreign direct investment (1.6% of GDP) and $22 billion of official development assistance (0.8% of GDP). Remittance inflows to the aforementioned 11 Arab labor-exporting countries amounted to $48 billion in 2014 (or 5.6% of their combined GDP), while net FDI inflows reached $16.4 billion (2.0% of GDP) and net ODA received reached $19.0 in 2013 (2.3% of GDP). Figure 4 below shows that over the past decade, remittances as a percent of nominal GDP has surpassed financial inflows from both foreign direct investments and official development assistance in the 11 remittance-receiving Arab countries. This accentuates the economic importance of remittances in these 11 countries and in the Arab region.

 Figure 4: Inflows from Remittances, Foreign Direct Investment, and Official Development Assistance to Labor-Exporting/Remittance-Receiving Arab Countries*, 2006-2014 (% of Nominal GDP)

 

Table 19: Remittance Inflows (Billion $ and % of GDP)

 

2006

2007

2008

2009

2010

2011

2012

2013

2014

Billion $

Algeria

1.61

2.12

2.20

2.06

2.04

1.94

1.94

2.00

2.00

Djibouti

0.03

0.03

0.03

0.03

0.03

0.03

0.03

0.04

0.04

Egypt

5.33

7.66

8.69

7.15

12.45

14.32

19.24

17.83

19.57

Jordan

2.79

3.33

3.51

3.47

3.52

3.37

3.49

3.64

3.74

Lebanon

5.20

5.77

7.18

7.56

6.91

6.91

6.67

8.08

7.40

Morocco

5.45

6.73

6.89

6.27

6.42

7.26

6.51

6.88

6.92

Sudan

0.80

1.00

1.59

1.39

1.10

0.44

0.60

0.62

0.51

Syria

0.80

1.03

1.33

1.35

1.62

n.a.

n.a.

n.a.

n.a.

Tunisia

1.51

1.72

1.98

1.96

2.06

2.00

2.27

2.29

2.35

Palestine

0.46

0.60

0.74

0.76

0.93

1.14

1.74

1.50

2.18

Yemen

1.28

1.32

1.41

1.16

1.53

1.40

3.35

3.34

3.35

Total

25.27

31.30

35.56

33.16

38.62

38.83

45.83

46.23

48.06

Arab Region

25.88

31.54

35.98

33.66

39.17

40.02

47.30

47.50

49.27

% of GDP

Algeria

1.38

1.57

1.29

1.50

1.27

0.97

0.93

0.95

0.94

Djibouti

3.70

3.38

3.04

3.09

2.89

2.61

2.46

2.45

2.24

Egypt

4.96

5.87

5.34

3.78

5.69

6.07

7.32

6.56

6.83

Jordan

18.56

19.44

15.98

14.55

13.31

11.68

11.28

10.84

10.43

Lebanon

23.87

23.47

24.91

21.51

18.19

17.25

15.44

18.23

16.19

Morocco

8.30

8.52

7.45

6.75

6.89

7.16

6.62

6.41

6.29

Sudan

2.24

2.18

2.92

2.62

1.68

0.66

0.95

0.93

0.69

Syria

2.39

2.55

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

4.39

4.41

4.41

4.52

4.68

4.37

5.02

4.88

4.83

Palestine

9.44

10.87

11.10

10.39

10.40

10.91

15.42

12.02

17.13

Yemen

6.72

5.16

4.64

4.08

4.94

4.52

10.45

9.30

9.30

Total

5.55

5.76

5.79

5.42

5.61

5.09

5.75

5.57

5.56

Arab Region

1.85

1.92

1.73

1.87

1.87

1.61

1.72

1.68

1.73

Source: World Bank Migration and Remittances Data and World Development Indicators. Retrieved May, 2016.

 Table 20: Foreign Direct Investment, Net Inflows (Billion $ and % of GDP)

 

2006

2007

2008

2009

2010

2011

2012

2013

2014

Billion $

Algeria

1.84

1.69

2.64

2.75

2.30

2.57

1.50

1.69

1.50

Djibouti

0.11

0.20

0.23

0.10

0.04

0.08

0.11

0.29

0.15

Egypt

10.04

11.58

9.49

6.71

6.39

(0.48)

2.80

4.19

4.78

Jordan

3.54

2.62

2.83

2.41

1.65

1.47

1.50

1.75

1.76

Lebanon

2.67

3.38

4.33

4.80

4.28

3.49

3.17

2.88

2.95

Morocco

2.37

2.81

2.47

1.97

1.24

2.52

2.84

3.36

3.58

Sudan

1.84

1.50

1.65

1.73

2.06

2.31

2.31

1.69

1.25

Syria

0.66

1.24

1.47

2.57

1.47

n.a.

n.a.

n.a.

n.a.

Tunisia

3.24

1.52

2.60

1.53

1.33

0.43

1.55

1.06

1.00

Palestine

0.02

0.02

0.05

0.30

0.18

0.24

0.06

0.19

0.13

Yemen

1.12

0.92

1.55

0.13

0.19

(0.52)

(0.01)

(0.13)

(0.74)

Total

27.46

27.46

29.31

24.99

21.13

12.12

15.83

16.96

16.38

Arab Region

69.41

81.83

97.41

79.52

66.67

44.76

49.14

46.60

43.14

% of GDP

Algeria

1.57

1.25

1.54

2.00

1.43

1.29

0.72

0.81

0.70

Djibouti

14.08

23.04

22.79

9.23

3.23

6.38

8.13

19.65

9.63

Egypt

9.34

8.87

5.83

3.55

2.92

(0.20)

1.06

1.54

1.67

Jordan

23.54

15.32

12.87

10.13

6.25

5.11

4.84

5.21

4.91

Lebanon

12.27

13.74

15.03

13.67

11.26

8.71

7.34

6.49

6.46

Morocco

3.60

3.55

2.67

2.12

1.33

2.49

2.89

3.13

3.26

Sudan

5.14

3.28

3.03

3.25

3.14

3.44

3.69

2.54

1.70

Syria

1.98

3.07

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

9.42

3.89

5.80

3.51

3.03

0.94

3.44

2.26

2.07

Palestine

0.38

0.36

0.77

4.13

2.02

2.28

0.56

1.52

0.99

Yemen

5.87

3.58

5.11

0.45

0.61

(1.67)

(0.04)

(0.37)

n.a.

Total

6.03

5.05

4.77

4.09

3.07

1.59

1.99

2.04

1.98

Arab Region

4.97

4.99

4.74

4.40

3.18

1.87

1.82

1.68

1.59

Source: World Bank, World Development Indicators. Retrieved May, 2016.

 Table 21: Net Official Development Assistance Received (Billion $ and % of GDP)

 

2006

2007

2008

2009

2010

2011

2012

2013

Billion $

Algeria

0.24

0.39

0.33

0.32

0.20

0.19

0.14

0.21

Djibouti

0.12

0.11

0.14

0.17

0.13

0.14

0.15

0.15

Egypt

0.90

1.13

1.74

1.00

0.60

0.41

1.81

5.51

Jordan

0.57

0.64

0.74

0.74

0.95

0.98

1.42

1.41

Lebanon

0.82

0.98

1.07

0.58

0.45

0.47

0.71

0.63

Morocco

1.10

1.22

1.45

1.05

0.99

1.46

1.48

1.97

Sudan

2.05

2.12

2.57

2.35

2.06

1.10

0.98

1.16

Syria

0.02

0.08

0.16

0.21

0.14

0.34

1.67

3.63

Tunisia

0.43

0.32

0.37

0.50

0.55

0.92

1.02

0.71

Palestine

1.36

1.72

2.47

2.83

2.52

2.44

2.01

2.61

Yemen

0.29

0.24

0.43

0.56

0.66

0.48

0.71

1.00

Total

7.89

8.97

11.46

10.30

9.25

8.93

12.09

18.98

Arab Region

17.55

19.06

22.76

14.36

12.37

13.01

14.95

22.02

% of GDP

Algeria

0.21

0.29

0.19

0.23

0.12

0.10

0.07

0.10

Djibouti

14.99

13.28

14.09

15.89

11.72

11.44

10.83

10.51

Egypt

0.84

0.87

1.07

0.53

0.27

0.18

0.69

2.02

Jordan

3.80

3.74

3.36

3.11

3.61

3.39

4.58

4.19

Lebanon

3.76

3.98

3.71

1.65

1.18

1.18

1.64

1.41

Morocco

1.68

1.55

1.57

1.13

1.06

1.44

1.51

1.83

Sudan

5.72

4.62

4.71

4.42

3.14

1.63

1.56

1.75

Syria

0.06

0.21

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Tunisia

1.25

0.83

0.84

1.16

1.25

2.01

2.25

1.52

Palestine

27.68

31.17

37.01

38.89

28.26

23.33

17.86

20.93

Yemen

1.51

0.95

1.41

1.96

2.15

1.53

2.21

2.79

Total

1.73

1.65

1.87

1.68

1.34

1.17

1.52

2.29

Arab Region

1.26

1.16

1.10

0.80

0.59

0.52

0.54

0.78

Source: World Bank, World Development Indicators. Retrieved May, 2016.

 It can be noted from Tables 19, 20, and 21 above that net FDI inflows to the Arab region declined by 37.8% from around $69 billion to $43 billion over the period 2006-2014, due to political and economic instability which dampened investor confidence. ODA increased slightly from around $18 billion in 2006 to $22 billion in 2013. On the other hand, remittance inflows to Arab countries increased by a hefty 88% from around $26 billion in 2006 to $49 billion in 2014. For example, in Egypt, Jordan and Tunisia, net FDI inflows declined by 52%, 50%, and 69% respectively over the period 2006-2014, while remittance inflows increased by 270%, 34%, and 56%, respectively.

Consequently, remittances have proven to be more reliable and resilient during crises than other sources of external financing such as foreign direct investment and official development assistance. However, 'remittances cannot be considered a substitute to these other sources of external finance due to their private nature and purpose. Remittances are seen today under a totally different light as they can become a solid resource base for leveraging human development, financial inclusion, and investment in a productive capacity' (UNCTAD, 2013).

 Figure 5: Inflows of Remittances, Foreign Direct Investment, and Official Development Assistance in Selected Arab Countries, 2014 (% of Nominal GDP)


In several Arab countries, remittances represent a sizable and stable source of funds that exceeds foreign official aid or foreign direct investment. Hence, remittance inflows can finance economic growth in receiving economies and have a substantial impact on poverty alleviation. Figure 5 shows the predominance of remittance inflows as a percentage of GDP over other sources of external financial flows such as FDI and ODA in the top Arab remittance-receiving countries. In Egypt, the share of remittances in nominal GDP is four times the share of FDI inflows and triple the amount of official development assistance received. Similarly in Lebanon, remittances as a percent of GDP is 3 times the share of FDI and 11 times the share of ODA.

a. The Economic and Financial Impact of Remittances  

Remittance inflows have a profound micro and macro-economic impact on Arab remittance-receiving or labor-exporting countries. There is solid evidence that remittances have helped many developing and least developed countries in maintaining stability in their current account and balance of payments, ensuring the availability of foreign currency reserves, improving credit worthiness for external borrowing, and fueling aggregate demand. Moreover, remittances improve government debt sustainability and reduce sovereign risks (UNCTAD, 2013). Remittance inflows also play a vital role in expanding the deposits base and bolstering the liquidity of a country’s banking sector, enabling banks to finance both the private sector and government-issued debt (Investor Insight, 2015).

Unlike other external financial inflows, remittances are generally stable and even countercyclical as they tend to rise when the recipient economy suffers an economic slump following a financial or political crisis. Consequently, remittances sustain consumption and contribute to the stability of recipient economies by compensating for foreign exchange losses due to macroeconomic shocks (Ratha and Mohapatra, 2007).

It can also be noted that remittances tend to support and increase aggregate domestic demand and household consumption (on food, clothing, healthcare, and education…) in Arab countries, thereby causing fluctuations in economic activity that is not necessarily translated into sustainable, long-term economic growth. For remittances to be effectively growth enhancing, they must be channelled into productive domestic investment in addition to consumption.

Along these lines, in Arab countries with underdeveloped financial systems, such as Algeria, Djibouti, and Yemen, remittances may acts as a substitute for financial development by providing an 'alternative means for financing investment and alleviating credit or liquidity constraints' (UNDP, 2011). This in turn has important ramifications on financial inclusion as recipients of remittance inflows tend to use such remittances to finance their expenditures and even invest, and hence do not resort to the formal financial sector i.e. to loans from the banking sector. 'Remittances may be a substitute for inefficient credit markets by helping local entrepreneurs bypass lack of collateral or high lending costs and start productive activities' (Giuliano and Luiz-Arranz, 2009).

Despite their economic importance, several drawbacks are associated with remittances. First and foremost, the Dutch Disease whereby large remittance inflows may lead to real exchange rate appreciation which harms export competitiveness of tradable sectors. Moreover, large capital inflows may also lead to monetary expansion, excessive consumption, and hence inflationary pressures, while reducing the incentive of governments to undertake necessary poverty-alleviation measures and infrastructure investments (UNCTAD, 2013). In addition, some Arab economies may be highly dependent on remittances which in turn discourages active labor participation, decreases the domestic labor supply and the accumulation of capital, and inexorably deters long-term economic growth.

To prove the above arguments and to detect the economic impact of remittances on labor-exporting Arab countries and the Arab region as a whole, we computed the correlation coefficient between remittances on one hand, and several macroeconomic variables: GDP growth rate, investment, inflation, imports, and current account deficit, on the other.  

Table 22: Correlation between Remittances to Major Labor-Exporting/Remittance-Receiving Arab Countries and Selected Macroeconomic Variables, 2000-2015

Correlation Between:

Correlation Coefficients

 

Algeria

Djibouti

Egypt

Jordan

Lebanon

Morocco

Sudan

Tunisia

Yemen

Arab Region

Remittances Growth Rate and Real GDP Growth Rate

0.65

(0.21)

0.20

0.64

(0.05)

0.58

0.17

0.62

0.10

0.48

Remittances and Total Investment, % of GDP

(0.46)

0.19

(0.14)

0.13

0.12

(0.17)

0.13

(0.35)

0.44

(0.02)

Remittances (Million $) and CPI

0.52

0.88

0.97

0.95

0.83

0.91

(0.52)

0.93

0.85

n.a.

Remittances and Imports, Million $

0.59

0.73

0.90

0.95

0.85

0.95

(0.01)

0.97

(0.41)

0.99

Remittances Growth Rate and Imports Growth Rate

0.45

(0.00)

0.37

0.24

0.18

0.28

(0.05)

0.56

(0.05)

0.46

Remittances and Current Account Deficit, Million $

0.10

(0.70)

(0.82)

(0.81)

(0.64)

(0.76)

0.33

(0.83)

(0.36)

0.37

Source: Authors' calculations based on World Bank and IMF Data. Note: CPI represents Inflation Index, end of period consumer prices.  

The nexus between remittances and economic growth is a complex and inconclusive one. Examining the correlation between the growth rate of remittances and real GDP growth rate in Arab countries, the above results show that Lebanon has the lowest correlation coefficient between the 2 variables over the period 2000-2015 (-0.05). This figure was highest in Algeria at 0.65, 0.64 in Jordan, 0.62 in Tunisia, 0.58 in Morocco, and 0.48 for the entire Arab region (Table 22). This suggests that Lebanon, unlike Jordan and the Maghreb countries, does not benefit from its considerable inflow of remittances to boost real economic growth.

Furthermore, we computed the correlation coefficient between remittances and several macroeconomic variables for each of the 11 remittance-receiving Arab countries and we found the following: (Table 22)

  • Overall, there is a low and sometimes negative correlation between remittances and investments, which suggests that remittance inflows are generally not channeled towards prolific local investment in the Arab region.
  • There is a very high positive correlation between remittances and both inflation and imports (in almost all of the sample countries except Sudan), which suggests that remittance inflows are used mainly in consumption (resulting in an increase in prices), and more specifically, the consumption of imported goods (resulting in an increase in imports). Consequently, the positive impact of remittances on the current account is (at least partially) offset by an increase in imports.  
  • There is a negative correlation between remittances and current account deficit in Sudan, Egypt, Jordan, Lebanon, Morocco, Tunisia, and Yemen which suggests that external balances benefit from these capital inflows. 

IV.The Cost of Money Transfer to Arab Countries and the Role of Banks in Channeling Remittances

 a. The Cost of Money Transfer to Arab Countries

The cost of money transfer to Arab remittance-receiving countries varies between sending countries and the amount being sent. According to the IMF and as shown in Tables 23 to 26 below, transaction costs of money transfer as a percentage of the principal amount sent are lower for larger remittances. The average cost for sending 200 units from non-Arab countries is 7.1% of the principal amount, and 8.2% from GCC countries. All in all, the average of sending 200 units from both non-Arab countries and GCC countries to the nine Arab remittance receiving countries under study is 7.64% of the principal amount. On the other hand, the average cost of sending 1000 units from a non- Arab country is only 3.79% of the principal amount sent, and 2.36% from GCC countries. The average of sending 1000 units from both non-Arab and GCC countries is 3.08% of the amount sent. This trend of larger remittances costing less when transferred can be useful for purposes of trade and investment in the receiving country. However, the large cost of sending lower amounts has negative effects on the lower-income migrants whose families are dependent on the remittances they send as these fees can reach as high as 25% of 200 units in some cases.

The cost of transferring a principal amount of 200 units of local currency through MoneyGram from Non-Arab countries to Arab remittance-receiving countries ranges between 3.8% and 11% of the principal amount. In Canada and the UK, transfer rates are constant for all nine countries under study at 7.5% and 9.5% of the principal amount, respectively. However, this is not the case for all countries as the cost of transferring money varies between receiving countries. While the difference can be slight as in the case of sending money from the US and Germany, some differences in cost can be large, as in France and Italy. More specifically, the cost of money transfer from the US to Egypt, Jordan, Lebanon, Palestine, and Yemen is 5.3% of the principal amount while it is at a slightly lower rate of 5.0% for Algeria, Djibouti, Morocco, and Tunisia. In Germany, where the difference in cost of money transfer between remittance-receiving countries is also small, all countries have a cost that is 7% of the principal amount except for Algeria and Palestine where it is 8%. In France, the difference in cost is large, where the cost of money transfer to Algeria, Djibouti, Egypt, Morocco, and Tunisia is 3.8% while it is at the much higher rate of 9% in Jordan, Lebanon, Palestine and Yemen. The same set of countries has a higher cost of money transfer from Italy at 11%.

 Alternatively, the cost of money transfer through MoneyGram from GCC countries to Arab remittance receiving countries varies within and between countries even further than Non-Arab sending countries. The highest cost of transferring 200 units from GCC countries is from Saudi Arabia to Algeria, Djibouti, and Tunisia where it is a considerable 25% of the principal amount being sent. The second largest cost of transferring the same amount is from the UAE to the same three countries: Algeria, Djibouti, and Tunisia at 20% of the principal amount. The recurrence of high costs for the same countries can be explained by the low or nonexistence of GCC remittances being sent to these countries. On the other hand, the lowest cost of transferring 200 units is from Oman and Bahrain to Palestine, where it is only 0.3% of the principal amount being sent. The second lowest cost of money transfer is from Saudi Arabia and Kuwait to Egypt where it is 0.5% and 0.8% of the principal amount, respectively, mainly due to the large number of Egyptian expats in these countries.

 Table 23: Cost of Money Transfer per 1000 Units of Sending Countries' Local Currencies through MoneyGram from Non-Arab Countries to Arab Remittance Receiving Countries

From

To

Cost or Fees

Cost in Percent

US

Algeria

16 USD

1.6%

Djibouti

16 USD

1.6%

Egypt

18 USD

1.8%

Jordan

18 USD

1.8%

Lebanon

18 USD

1.8%

Morocco

16 USD

1.6%

Tunisia

16 USD

1.6%

Palestine

18 USD

1.8%

Yemen

18 USD

1.8%

 

Canada

Algeria

50 CAD

5.0%

Djibouti

50 CAD

5.0%

Egypt

50 CAD

5.0%

Jordan

50 CAD

5.0%

Lebanon

50 CAD

5.0%

Morocco

50 CAD

5.0%

Tunisia

50 CAD

5.0%

Palestine

50 CAD

5.0%

Yemen

50 CAD

5.0%

 

France

Algeria

33 EUR

3.3%

Djibouti

33 EUR

3.3%

Egypt

33 EUR

3.3%

Jordan

47 EUR

4.7%

Lebanon

47 EUR

4.7%

Morocco

33 EUR

3.3%

Tunisia

33 EUR

3.3%

Palestine

47 EUR

4.7%

Yemen

47 EUR

4.7%

 

Germany

Algeria

39 EUR

3.9%

Djibouti

34 EUR

3.4%

Egypt

36.50 EUR

3.65%

Jordan

36.50 EUR

3.65%

Lebanon

36.50 EUR

3.65%

Morocco

36.50 EUR

3.65%

Tunisia

36.50 EUR

3.65%

Palestine

39 EUR

3.9%

Yemen

36.50 EUR

3.65%

 

UK

Algeria

46 GBP

4.6%

Djibouti

46 GBP

4.6%

Egypt

46 GBP

4.6%

Jordan

46 GBP

4.6%

Lebanon

46 GBP

4.6%

Morocco

46 GBP

4.6%

Tunisia

46 GBP

4.6%

Palestine

46 GBP

4.6%

Yemen

46 GBP

4.6%

 

Italy

Algeria

29.5 EUR

2.95%

Djibouti

29.5 EUR

2.95%

Egypt

29.5 EUR

2.95%

Jordan

49.9 EUR

4.99%

Lebanon

49.9 EUR

4.99%

Morocco

29.5 EUR

2.95%

Tunisia

29.5 EUR

2.95%

Palestine

49.9 EUR

4.99%

Yemen

49.9 EUR

4.99%

Source: MoneyGram, extracted May, 2016. Note: Amount received in recipient countries' local currencies except in Palestine where it is received in USD.  

  Table 24: Cost of Money Transfer per 1000 Units of Sending Countries' Local Currencies through MoneyGram from GCC countries to Arab Remittance Receiving Countries

From

To

Cost or Fees

Cost in Percent

Saudi Arabia

Algeria

90 SAR

9%

Djibouti

90 SAR

9%

Egypt

1 SAR

0.1%

Jordan

30 SAR

3%

Lebanon

30 SAR

3%

Morocco

30 SAR

3%

Tunisia

90 SAR

9%

Palestine

30 SAR

3%

Yemen

10 SAR

1%

 

UAE

Algeria

70 AED

7%

Djibouti

70 AED

7%

Egypt

15 AED

1.5%

Jordan

30 AED

3%

Lebanon

30 AED

3%

Morocco

30 AED

3%

Tunisia

70 AED

7%

Palestine

30 AED

3%

Yemen

15 AED

1.5%

 

Kuwait

Algeria

28 KWD

2.8%

Djibouti

28 KWD

2.8%

Egypt

4 KWD

0.4%

Jordan

12.75 KWD

1.275%

Lebanon

12.75 KWD

1.275%

Morocco

28 KWD

2.8%

Tunisia

28 KWD

2.8%

Palestine

12.75 KWD

1.275%

Yemen

12.75 KWD

1.275%

 

Bahrain

Algeria

8 BHD

0.8%

Djibouti

8 BHD

0.8%

Egypt

8 BHD

0.8%

Jordan

8 BHD

0.8%

Lebanon

8 BHD

0.8%

Morocco

2.5 BHD

0.25%

Tunisia

8 BHD

0.8%

Palestine

0.5 BHD

0.05%

Yemen

8 BHD

0.8%

 

Qatar

Algeria

25 QR

2.5%

Djibouti

25 QR

2.5%

Egypt

20 QR

2.0%

Jordan

25 QR

2.5%

Lebanon

25 QR

2.5%

Morocco

25 QR

2.5%

Tunisia

25 QR

2.5%

Palestine

25 QR

2.5%

Yemen

25 QR

2.5%

Oman

Algeria

13 OMR

1.3%

Djibouti

13 OMR

1.3%

Egypt

7 OMR

0.7%

Jordan

9 OMR

0.9%

Lebanon

9 OMR

0.9%

Morocco

7 OMR

0.7%

Tunisia

7 OMR

0.7%

Palestine

0.5 OMR

0.05%

Yemen

3 OMR

0.3%

Source: MoneyGram, extracted May, 2016. Note: Amount received in recipient countries' local currencies except in Palestine where it is received in USD. 

Table 25: Cost of Money Transfer per 200 Units of Sending Countries' Local Currencies through MoneyGram from Non-Arab Countries to Arab Remittance Receiving Countries

From

To

Cost or Fees

Cost in Percent

US

Algeria

9.99 USD

5.0%

Djibouti

9.99 USD

5.0%

Egypt

10.5 USD

5.3%

Jordan

10.5 USD

5.3%

Lebanon

10.5 USD

5.3%

Morocco

9.99 USD

5.0%

Tunisia

9.99 USD

5.0%

Palestine

10.5 USD

5.3%

Yemen

10.5 USD

5.3%

 

Canada

Algeria

15 CAD

7.5%

Djibouti

15 CAD

7.5%

Egypt

15 CAD

7.5%

Jordan

15 CAD

7.5%

Lebanon

15 CAD

7.5%

Morocco

15 CAD

7.5%

Tunisia

15 CAD

7.5%

Palestine

15 CAD

7.5%

Yemen

15 CAD

7.5%

 

France

Algeria

7.5 EUR

3.8%

Djibouti

7.5 EUR

3.8%

Egypt

7.5 EUR

3.8%

Jordan

18 EUR

9.0%

Lebanon

18 EUR

9.0%

Morocco

7.5 EUR

3.8%

Tunisia

7.5 EUR

3.8%

Palestine

18 EUR

9.0%

Yemen

18 EUR

9.0%

 

Germany

Algeria

16 EUR

8.0%

Djibouti

14.5 EUR

7.3%

Egypt

14 EUR

7%

Jordan

14 EUR

7%

Lebanon

14 EUR

7%

Morocco

14 EUR

7%

Tunisia

14 EUR

7%

Palestine

16 EUR

8.0%

Yemen

14 EUR

7%

 

UK

Algeria

19 GBP

9.5%

Djibouti

19 GBP

9.5%

Egypt

19 GBP

9.5%

Jordan

19 GBP

9.5%

Lebanon

19 GBP

9.5%

Morocco

19 GBP

9.5%

Tunisia

19 GBP

9.5%

Palestine

19 GBP

9.5%

Yemen

19 GBP

9.5%

 

Italy

Algeria

8.3 EUR

4.2%

Djibouti

8.3 EUR

4.2%

Egypt

8.3 EUR

4.2%

Jordan

22 EUR

11.0%

Lebanon

22 EUR

11.0%

Morocco

8.3 EUR

4.2%

Tunisia

8.3 EUR

4.2%

Palestine

22 EUR

11.0%

Yemen

22 EUR

11.0%

Source: MoneyGram, extracted May, 2016. Note: Amount received in recipient countries' local currencies except in Palestine where it is received in USD.

 Table 26: Cost of Money Transfer per 200 Units of Sending Countries' Local Currencies through MoneyGram from GCC countries to Arab Remittance Receiving Countries

From

To

Cost or Fees

Cost in Percent

Saudi Arabia

Algeria

50 SAR

25%

Djibouti

50 SAR

25%

Egypt

1 SAR

0.5%

Jordan

30 SAR

15%

Lebanon

30 SAR

15%

Morocco

30 SAR

15%

Tunisia

50 SAR

25%

Palestine

30 SAR

15%

Yemen

10 SAR

5%

 

UAE

Algeria

40 AED

20%

Djibouti

40 AED

20%

Egypt

15 AED

7.5%

Jordan

30 AED

15%

Lebanon

30 AED

15%

Morocco

30 AED

15%

Tunisia

40 AED

20%

Palestine

30 AED

15%

Yemen

15 AED

7.5%

 

Kuwait

Algeria

10.5 KWD

5.3%

Djibouti

10.5 KWD

5.3%

Egypt

1.5 KWD

0.8%

Jordan

2.75 KWD

1.4%

Lebanon

2.75 KWD

1.4%

Morocco

10.5 KWD

5.3%

Tunisia

10.5 KWD

5.3%

Palestine

2.75 KWD

1.4%

Yemen

2.75 KWD

1.4%

 

Bahrain

Algeria

4 BHD

2%

Djibouti

4 BHD

2%

Egypt

4 BHD

2%

Jordan

4 BHD

2%

Lebanon

4 BHD

2%

Morocco

2.5 BHD

1.3%

Tunisia

4 BHD

2%

Palestine

0.5 BHD

0.3%

Yemen

4 BHD

2%

 

Qatar

Algeria

25 QR

12.5%

Djibouti

25 QR

12.5%

Egypt

20 QR

10%

Jordan

25 QR

12.5%

Lebanon

25 QR

12.5%

Morocco

25 QR

12.5%

Tunisia

25 QR

12.5%

Palestine

25 QR

12.5%

Yemen

25 QR

12.5%

Oman

Algeria

4.5 OMR

2.3%

Djibouti

4.5 OMR

2.3%

Egypt

2 OMR

1%

Jordan

3 OMR

1.5%

Lebanon

3 OMR

1.5%

Morocco

2 OMR

1%

Tunisia

2 OMR

1%

Palestine

0.5 OMR

0.3%

Yemen

2 OMR

1%

Source: MoneyGram, extracted May, 2016. Note: Amount received in recipient countries' local currencies except in Palestine where it is received in USD.

 b. The Role of Banks in Channeling Remittances 

The remittances market in Arab countries, similar to other countries across the world, is not controlled by banks but remains prodigiously dominated by a small number of Money Transmitter Operators (MTOs) such as Western Union and MoneyGram. These companies charge fees and exchange rate commissions, which greatly differ among locations and destinations. This suggests that a significant portion of remittances goes to the operators as monopolistic or oligopolistic rents rather than to the families of migrants (Alberola and Salvado, 2006).  

 Moreover, most low-income groups in remittance-receiving Arab countries, who are more likely to receive remittances than high-income groups, have a low degree of financial inclusion in the formal banking sector and hence limited access to credit. In Egypt for instance, despite receiving remittance inflows of $19.7 billion in 2015, only 13.7% of the adult population and a mere 5% of the poorest 40% of the population had a bank account in 2014. The case is similar in other major remittance-receiving Arab countries such as Jordan, Lebanon, Tunisia, Palestine and Yemen, (see Figure 6). This accentuates the low level of financial inclusion and emphasizes the need for Arab banks to strengthen their role in channeling remittances, as the bancarisation of remittances is an important lever to promote financial inclusion in receiving countries, especially to low-income segments. 


Contrary to banks, MTOs cannot offer financial products and services attached to their intermediary role (Alberola and Salvado, 2006). Nevertheless, expatriate packages provided by Arab banks remain limited with the majority of banks merely offering money transfer/remittance services and housing loans. Maghreb countries – namely Morocco, Tunisia and Lebanon are considered pioneers in this area; in addition to traditional deposit accounts and saving schemes, housing loans, debit and credit cards, bancassurance, and money transfer operations, top banks in the aforementioned countries offer products and services that encourage investment in vital economic sectors (such as health, education, industry, tourism,…), as well as manage and diversify investors' portfolios. Conversely, banks in other Arab countries still offer rudimentary products and services.

 a. The Impact of De-Risking on Remittances to the Arab Region

Markedly, the AML/CFT regulations may be, to a certain extent, counter-productive, causing negative spillover effects on the remittances market (e.g. raising costs, use of informal means) (Pieke et al., 2005). However, according to a joint survey by the International Monetary Fund and the Union of Arab Banks regarding the impact of de-risking on MENA banks in mid-2015, banks did not perceive much effect on international cash remittance transfers in response to enhanced implementation of global regulatory standards and sanctions, with the exception of banks in countries classified as “Improving Global AML/CFT Compliance: on-going process'.

About 40% of surveyed banks noted that rules governing remittances for customers with bank accounts have to meet FATF standard requirements (such as purpose, name, account number, address, source of funds, and relationship to beneficiary). Five banks indicated that they cater international cash remittance transfers only for account holders and not for third parties. As part of the risk-based approach, two banks indicated that monitoring activity has also expanded to the screening of SWIFT messages. By contrast, 22% of banks from sanctioned countries reported notable difficulties in international cash remittance transfers. Several banks noted that some de-risking has taken place through their decision to no longer provide foreign currency transactions services to third parties such as MTOs (IMF-UAB, 2015).

V. Policy Recommendations:

Optimizing the Role of Remittances in Economic, Human, and Social Development

Currently, the positive effects of remittances on the Arab region are seen on a small-scale micro level as remittances are mostly used for consumption on food, education, and healthcare. However, the macroeconomic effects of remittances have not yet been tapped into by Arab governments and banks. The goal of governments should be to use remittances for the purposes of economic, social, and human development. The following recommendations could be followed in order to design and promote a well-defined policy focused on using remittances to finance development:

 1)     Reducing informational deficiencies by improving remittance databases and research methodologies of national statistical offices and central banks in order to have a more thorough understanding of the actual size of remittance inflows to Arab countries, considering the large amounts that go through informal channels of money transfer. In specific, “no data is available on the remitters’ characteristics, the channels used to transfer money, the exact use of the transferred money by recipients, and the impact of remittances on aggregate economic variables (gross national product, employment, imports, inflation, etc.)” (Escwa, 2011).

 2)     Benefiting and learning from the experiences of countries that have large migrant populations and have made use of remittances for developmental purposes, such as El Salvador and Mexico. The main aim of governments and central banks regarding the increase of remittance inflows should be to promote the use of the banking system in the process of money transfer. To do so, the system should have special fiscal and institutional incentives for remittance sending and receiving parties that aim to channel their funds to developmental projects. Some of the benefits of such a system include the creation of jobs, the promotion of education and hence the reduction of illiteracy rates, and the alleviation of poverty.

 3)     Strengthening the link between remittances and financial inclusion. The Low banking penetration in Arab countries, especially in rural and low-income areas, leads to larger reliance on informal channels of remittance transfer. As a result, the economy does not develop or benefit from remittances even though they form a large part of capital inflows into many Arab countries, such as Egypt, Lebanon, and Morocco. Hence, the promotion of financial inclusion in low-income and rural areas can lead to the use of formal channels in the transfer of remittances and can ultimately lead to further economic development.

 4)     Urging international and regional organizations as well as Arab banks to explore new ways to boost remittance transfers through formal channels in order to strengthen the use of remittances for developmental purposes. The cost of money transfer through banks, money transfer companies, and financial services companies should be reduced in order to promote the use of official money transfer channels as the high fees of transferring money to Arab countries which can reach as high as 25% of transferring 200 units from Saudi Arabia to Algeria, Djibouti, and Tunisia are sometimes unreasonably high.

 5)     Generating additional sources of external financing, other than financial aid, to help Arab economies endure political or economic crises. In times of financial stress, countries like India have turned to diaspora bonds as sources of cheap and stable external sources of finance. Diaspora bonds are ones where developing countries borrow from their diaspora and migrant communities abroad to bridge development financing gaps in education, infrastructure, health, and housing projects. 'A diaspora bond is a debt instrument issued by a country- or potentially, by a sub- sovereign public or private entity- to raise financing from its overseas diaspora' (UNDP,2011).

 6)     Facilitating the creation and development of legislation that supports the promotion of investments to the diaspora community. An example of this is a new Lebanese law that is being promoted by the Lebanese foreign ministry which will allow members of the Lebanese diaspora community to attain Lebanese citizenship. This would be helpful for purposes of migrant bonds as well as development investments by diaspora members as it is usually easier to invest in a country as a citizen than as a foreigner.

 7)     Emphasizing the importance of remittances as a source of stable hard currency given the fact that many Arab remittance-receiving countries like Egypt, Lebanon and Jordan are often reliant on high foreign reserves for economic stability and banking sector security. Moreover, the availability of abundant foreign currency reserves through stable remittance inflows has often been highlighted as a key contributor to good credit ratings by major rating companies like Standard and Poor's (S&P) and Moody's, which in turn reduces the cost of borrowing money from international markets (UNDP,2011).

References

 Alberola, E. and Salvado, R.C. (2006). Banks, Remittances and Financial Deepening in Receiving Countries. A Model. Working Paper No. 0621. Banco de España, Madrid, 2006.

 Corm, G. (2006). Labor Migration in the Middle East and North Africa: A View from the Region. World Bank.

 De, S. et al. (2015). How the Oil Price Decline Might Affect Remittances from GCC. International Monetary Fund, December 2015.

 Escwa. (2011). Strengthening Capacities to Utilize Workers’ Remittances for Development.

 Giuliano, P. and Ruiz-Arranz, M. (2009). Remittances, Financial Development, and Growth. Journal of Development Economics Volume 90, Issue 1, Pages 144–152.

 International Monetary Fund. (2009). Balance of Payments and International Investment Position Manual. Sixth Edition (BPM6).

 International Monetary Fund and Union of Arab Banks. (2015). The Impact of De-Risking on MENA Banks. Joint Survey by the Union of Arab Banks (UAB) and the International Monetary Fund (IMF).

 International Monetary Fund. (2016). World Economic Outlook April 2016. Washington, DC.

Investor Insight. (2015). Remittances and a Strong Banking System Keep Lebanon Afloat, Even in Tough Times. Institutional Investor Sponsored Report, September 2015.

 Pieke, F., N. Van Hear and A. Lindley. (2005). Synthesis Study: A part of the report on Informal Remittance Systems in Africa, Caribbean and Pacific (ACP) countries. Centre on Migration Policy and Society (COMPAS), University of Oxford, UK.

 Ratha, D. and Mohapatra, S. (2007).  Increasing the Macroeconomic Impact of Remittances on Development. Development Prospects Group. The World Bank. Washington D.C. 20433, November, 2007.

 United Nations Conference on Trade and Development UNCTAD. (2013). Maximizing the Development Impact of Remittances. United Nations. New York and Geneva, 2013.

 United Nations Development Programme, UNDP. (2011). Towards Human Resilience: Sustaining MDG Progress in an Age of Economic Uncertainty. Chapter 4. Remittances. New York: UNDP, September 2011.

 World Development Indicators. (2016). Washington, DC: World Bank.

 World Bank. (2006). Global Economic Prospects. Economic Implications of Remittances and Migration. Washington, DC: World Bank.

 World Bank. (2016). Migration and Remittances Recent Developments and Outlook. Migration and Development Brief 26. Knomad and World Bank Group Washington, DC. April 2016. 



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