The World Bank said this month it expects a bigger increase in cross-border payments this year than previously expected, largely due to the upheaval caused by Russia's invasion of Ukraine earlier this year.
Remittance payments are expected to climb to $802 billion, an increase of about 3.7% from a year earlier, as cross-border payments flood into Ukraine in the wake of the invasion by Russia in February, according to a recent report released by the World Bank. In a prior report last November, the World Bank had forecast a lower 3.1% increase.
The World Bank estimates Ukraine as the largest remittance recipient in Europe and Central Asia. Payments to the war-torn country where millions of citizens have been displaced are expected to increase by more than 20% this year, according to the World Bank. Ukraine received inflows of $18.2 billion last year, driven by cross-border payments from Poland, which has accepted more than three million of the roughly 6 million Ukrainian refugees who have fled the country since the war began in February.
Payment flows to low- and middle-income countries, which are more likely to have residents that need such remittances, are forecast to reach $630 billion, fueled by double-digit percentage gains in Latin America/The Caribbean and Sub-Saharan Africa. That's a 4.1% increase from the estimate for last year.
On average globally, it cost 6% to send $200 in the fourth quarter of 2021, the World Bank said.
"The global goodwill towards refugees and migrants from Ukraine opens an opportunity to develop and pilot programs to facilitate their access to jobs and social services in host countries, apply simplified anti-money laundering and counter-terrorist financing procedures for small remittance transactions to help reduce remittance costs and mobilize diaspora bond financing," according to a May 11 World Bank statement.
Dilip Ratha, the lead author of the report on migration, estimated that lowering remittance fees by 2 percentage points could “potentially translate to $12 billion of annual savings for international migrants." Migrants and refugees from Ukraine could save $400 million, he said.
“The cross-border payment systems, however, are likely to become multipolar and less interoperable, slowing progress on reducing remittance fees,” Ratha said in the release.
The World Bank has long argued that remittance fees are too high.
Payments to Central Asian countries dependent on Russian remittances for more than 30% of their gross domestic products, such as Tajikistan and the Kyrgyz Republic, will likely decline dramatically this year, which “combined with rising food, fertilizer, and oil prices, are likely to increase risks to food security and exacerbate poverty in many of these countries,” the World Bank said.
"Near-term projections for remittances to the region, which are expected to fall by 1.6% in 2022, are highly uncertain, dependent on the scale of the war in Ukraine and the sanctions on outbound payments from Russia," the bank continued.
The war in Ukraine has upended the international payment network. As punishment for the attack, the U.S. and its allies impose international sanctions on Russia, booting it from the international financial messaging network Swift (Society for Worldwide Interbank Financial Telecommunication), which is used by banks to facilitate cross-border payments across 200 countries. According to the World Bank, excluding Russia from SWIFT "has added a national security dimension to participation in international payments systems."
The impact of Russia losing access to SWIFT isn't clear in light of Russia having taken steps for more than a decade to protect itself from international sanctions. Moscow has built a Russia-based rival to Swift called the System for Transfer of Financial Messages, which isn’t subject to U.S. sanctions and could serve as a substitute for the bigger international network. Russia also has built up its foreign currency reserves.