Dollar rally reshaping migrant workers' remittances

The sharp appreciation of the dollar against most major currencies over the past six months isn't just creating headaches for the world's leading multinationals.

It's also leading to sharply diverging fortunes between the countries that have long relied on the remittances from the world's almost 250m migrant workers to shore up their economies.

While a resurgent greenback and the recovery in the US economy lifted the amount of money sent home by migrants in the US to Latin America last year, economic stagnation in Europe and sanction-hit Russia has had the opposite effect, according to the latest World Bank report.

Eastern European and Central Asian countries that are heavily dependent on remittances from workers in Russia are among those hardest hit by the weaker rouble.

Remittances to the region are estimated to have fallen by 6.3 per cent to $48bn in 2014 after growing 11.1 per cent in 2013, and are projected to contract another 12.7 per cent this year.

Within this, remittances from Russia in US dollar terms during the last quarter of 2014 fell by 51 per cent to Ukraine, 43 per cent to Uzbekistan, 31 per cent to Armenia, and 27 per cent to Tajikistan.

The World Bank notes:

Russia's economic slowdown adversely affect remittances through three channels: (a) many migrant workers lost their jobs and it became more difficult to find new employment; (b) the depreciation of the ruble reduced the real incomes of migrant workers in Russia, making it more difficult to send money home; and (c) the depreciation of the ruble and other local currencies in the ECA region also reduced the value of remittances in US dollar terms.

Remittances to North African countries, namely Morocco, Algeria and Tunisia, where Europe is the main source of money sent back, also suffered in 2014 as the euro began falling.

By contrast, the amount of money dispatched back by migrant workers from Latin America and the Caribbean (LAC) rose 5.8 per cent last year. But even here, there are large variations.

Mexico, El Salvador, Guatemala and Honduras - whose migrants are largely based in the US - saw a rise in remittances by more than 6 per cent in 2014.

However, remittance growth in Argentina, Bolivia, and Paraguay has been sluggish while remittances declined in Brazil and Peru, partly owing to the economic problems in Spain which hosts one-tenth of all migrants from the LAC region.

The World Bank said:

Continued growth in GDP and employment in the United States is expected to boost remittances to Mexico and Central America. However, the high unemployment rate in Spain is anticipated to constrain remittance flows to Bolivia, Colombia, Paraguay, and Peru.

With conflicts and economic hardship expected to continue to drive workers abroad, overall remittances are expected to increase to $479bn by 2017 from $436bn in 2014.