The World Bank estimates the volume of incoming expatriate remittances to countries in the Middle East and North Africa region in 2022 at about $63 billion, an increase of 2.5 per cent compared to the previous year.
Ali Noureddine
This article was translated from Arabic.
Expatriate remittances are a crucial factor in maintaining financial and monetary stability in several Arab countries, including Egypt, Morocco, Lebanon, Jordan, Syria as well as the West Bank and Gaza Strip.
Although the number of remittances received and their share of GDP varies between the aforementioned countries, their importance has been increasing as a result of the severe economic and financial difficulties that the majority of these economies are currently experiencing. For these economies to be sustained, there is a growing need for foreign currency liquidity inflows from other countries.
The countries most dependent on expatriate remittances
The World Bank estimates the volume of incoming expatriate remittances to countries in the Middle East and North Africa region in 2022 at about $63 billion, an increase of 2.5 per cent compared to the previous year.
Lebanon ranks first among the region’s countries in terms of the percentage of expatriate remittances from GDP, which reached 37.8 per cent in 2022, highlighting its significant reliance on these transfers to survive its current financial crisis.
Even prior to the financial collapse of 2019, the percentage of expatriate remittances from GDP in Lebanon did not exceed 14.5 per cent in 2018. Although the volume of these transfers decreased from $7.8 billion in 2018 to $6.8 billion in 2022, their percentage in GDP has increased by 2.6 times between the two periods (from 14.5 per cent to 37.8 per cent).
The significant increase in the percentage of expatriate remittances from GDP, despite the decrease in their volume, can be attributed to the severe contraction of the Lebanese economy following the 2019 crisis. Lebanon experienced a massive 37.3 per cent decline in its domestic product since the crisis, which amplified the weight of expatriate remittances compared to the dwindling local economy.
The weakening economy and the least significant drop in the value of remittances were the primary causes of this percentage increase. Remittances from expatriates are currently Lebanon’s most important source of hard currency following the financial system’s collapse, which halted the flow of deposits and investments.
The West Bank and Gaza Strip rank second in the Middle East and North Africa region, with the percentage of expatriate remittances received from the Gross Domestic Product reaching 18.6 per cent in 2022. This marks a significant increase from the 10.4 per cent recorded in 2019, indicating a greater reliance on remittances from expatriates in the years between 2019 and 2022. This transformation is linked to the region’s growing economic isolation resulting from the Israeli blockade, which have increased the phenomenon of exporting labor abroad.
In third place is Jordan, with the percentage of expatriate remittances to GDP estimated at around 9.7 per cent. Jordanians were optimistic at the end of 2022, with the value of these transfers increasing by 1.5 per cent to reach a total volume of $3.4 billion. However, Jordan experienced a slowdown in the flow of these transfers in the run-up to 2022 due to the decline in oil prices during the outbreak of the COVID-19 pandemic, which had negative repercussions on the economies of the Gulf countries where many Jordanian expatriates reside.
Expatriate remittances are a crucial source of hard currency for the Central Bank of Jordan, which has recently seen a decline in its total reserve assets (foreign currencies, gold, and securities) from $20.59 billion at the beginning of 2022 to $19.85 billion at the end of the same year. To enhance these reserves and limit their decline, the Central Bank of Jordan relies on remittances from expatriates by charging these transfers in foreign currencies and paying their value in Jordanian dinars to local beneficiaries.
MENA nations with the highest inflows of money
Egypt tops the list of North African and Middle Eastern countries in terms of the volume of expatriate remittances received in US dollars. In 2022, Egypt received around $32.3 billion in remittances, primarily from Egyptians working in the Arab Gulf region. However, due to the economic unrest, Egypt has been experiencing, these payments fell by 20.9 percent in the first quarter of 2023. Despite this, Egypt continues to take the lead in terms of the number of remittances sent home by emigrants.
The Egyptian government has attempted to increase the volume of these transfers by offering incentives to expatriates, such as high-interest certificates of deposit in foreign currency, exemption from customs duties for imported cars, and attractive real estate prices. However, these initiatives have faced difficulties in increasing the volume of transfers, indicating a lack of confidence among Egyptians abroad in the government’s monetary and economic policies.
The biggest challenge facing the Egyptian government and banks today is the fact that the majority of expatriate transfers do not go through the formal banking system, and as a result, the financial system does not benefit from these deposits. Due to the discrepancy between the official exchange rate used by the financial system and the higher parallel market exchange rate, many Egyptians prefer to use informal transfer channels that bypass banks. This has deprived the financial system of a significant inflow of dollars and increased monetary pressure on it.
Morocco ranks second in the North Africa and Middle East region in terms of the volume of incoming expatriate remittances, with the amount reaching $11.4 billion in 2022. This was a first for Morocco and helped increase the Central Bank’s hard currency reserves, allowing it to pay for the import of goods from overseas.
Expatriate remittances to Morocco saw consecutive increases of 14.6 per cent in 2022 and 37.5 per cent in 2021, leading to a record level of $11.4 billion in 2022. This recovery was a result of the gradual economic rebound following the outbreak of the COVID-19 pandemic in 2020, especially in European economies where the largest Moroccan communities reside abroad.
What sets Morocco apart is that a significant portion of expatriate remittances comes in the form of direct investments in the country, rather than just aid, savings, or consumer spending, which is the case in Lebanon, Gaza, and the West Bank. The Moroccan government has taken steps to increase local investments involving Moroccans living and working abroad by promoting private projects in various sectors such as real estate development, services, agriculture, technology, tourism, and others.
Concerns regarding excessive reliance on expatriate remittances
It is evident that expatriate remittances serve as a crucial lifeline for the economies of Lebanon, the West Bank, and the Gaza Strip, while also providing vital financial support for Egypt and Jordan, given their acute need for foreign currencies. Additionally, given the shrinking scope of social safety nets, these remittances have become a vital source of sustainable income for some of the most vulnerable groups, who rely on regular assistance from relatives living abroad.
The excessive dependence on remittances from expatriates does raise some questions. As a result of their reliance on these remittances, local economies may find themselves in a perpetual loop of exporting their talents and skills in order to secure and improve these remittances on a regular basis, rather than investing in the local economy’s capacity to take in this labor force. This approach can adversely impact the productivity and competitiveness of the domestic economic sectors, exacerbate the suffering of migrant families, and intensify the social disparities arising from this phenomenon.
The region’s nations must exercise caution to avoid repeating the Lebanese experience, in which incoming remittances from expatriates were utilized to boost financial sector deposits, fund the state’s deficits, and public debt, and stabilize the Lebanese pound’s exchange rate. When the state’s creditworthiness was compromised and the losses from risky investments in the banking sector grew, this led to the collapse of the banking industry. Therefore, it is crucial for the countries in the region to manage these incoming transfers prudently and avoid uncalculated risks, as seen in Lebanon.
Instead of depending exclusively on these transfers for social assistance or bank deposits, nations could develop policies to direct them toward productive investments. These investments will pay off in the long run by developing profitable industries, generating employment, and lowering the need to further displace the local labor force.