Why are Foreign Remittances Important?

What is Foreign Remittance?

The money transfer overseas from another country to their family or loved ones is called Foreign remittance to home country. In most of the countries, the gross domestic product is made significantly by remittance and it also acts as an economic growth indicator.

According to one study, which was conducted in 2020 the United States is the leading source of sending foreign remittances followed by Saudi Arabia and the United Arab Emirates (UAE). The top recipients of foreign remittances are India, China, Mexico, and the Philippines.

Understanding Foreign Remittances

There is a well established truth that Foreign remittances play a critical role in sustenance of a migrant's family especially in fulfilling the basic needs such as food and clothing. As the foreign remittances are the savings that migrant workers keep while moving away from his country such as in the United States. The Third World states remain heavily dependent on foreign remittances from citizens working abroad.

Total Amount of Foreign Remittances

Record-high foreign remittances amounting to $548 billion were sent to low- and middle-income countries in 2019 as reported by the World Bank. In 2020, this amount slipped slightly to $540 billion amid the global COVID19 pandemic.

Benefits of Foreign Remittances

This is the perception of many scientists and economists that foreign remittances are inescapable in the development of the country and they have implications that extend beyond an individual’s finances. For example, since remitting involves financial institutions, people who send and receive remittances are likely to have bank accounts, which promotes economic development.

Remittances can be lifesaving in emergencies, such as natural disasters and armed conflicts, when the recipients' other sources of income disappear. Also, if the home country experiences an economic downturn, remittances can help to alleviate economic hardship.

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