Fitch: India and China Have Highest Remittances

India tops the list of remittances and China comes second, while as a percentage of gross domestic product, funds inflow is most important for Bangladesh, a Fitch study shows.

The cash sent by workers living abroad has spectacularly risen over the past 10 years, the rating agency has said.

In India, it is to a large extent due to an increased share of the highly skilled among those working abroad, and a shift from using informal money transfers (hawala in Hindi) to formal remittance channels because of regulatory changes and cost.

India and China also host large numbers of migrant workers who send money home; outflows from India were worth $6.4bn and from China $4.4bn in 2013.

On a net basis, remittance inflows into India were $63.5bn and $55.0bn in China. For Bangladesh, it is more than 10% of its GDP, and for Philippines and Sri Lanka, close to but below the 10% mark.

In Bangladesh, the Philippines, Sri Lanka and Vietnam, remittances are particularly strong relative to their economies.

"In these countries, the abundance of cheap unskilled labour is turned into a comparative advantage this way; the inflows support income and consumption, and form an important element of the current account balance," Fitch said.

Ratings Impact

The relatively stable nature of remittances, illustrated by resilient inflows during the 2007-2008 global financial crisis, generally strengthens external balances, Fitch said.

However, remittances could still be a risk to the credit profile as a sudden drop in these funds may lead to an external financing problem, the rating agency noted.

"Countries with a large deficit in the current account balance adjusted for remittances like Sri Lanka, for instance, would be vulnerable to anti-immigration sentiment at one or more of their main host countries, and a sudden tightening of visa requirements," according to the Fitch research.

Having a high concentration of remittance inflows from a few sources would exacerbate this risk; for instance, the Middle East accounts for the lion's share of remittance inflows in Sri Lanka (56%) and Bangladesh (59%).

But for Vietnam, it is much less of a risk; that country would still have a narrow current account deficit in case of a sharp drop in such funds.

Anti-immigrant sentiment toward Bangladeshi workers in some Middle Easte countries was in the news earlier this year, and demand for their work temporarily fell, Fitch said.

In recent months, Bangladeshi remittances from the Middle East have recovered. Remittance sources may become more diverse in the years ahead, according to the rating agency.