May 19, 2022/CSL Research
Based on a World Bank report, remittance flows to low and middle-income countries (LMICs) are expected to increase by 4.2% this year to reach US$630 billion. Remittance inflows to Sub-Saharan Africa were up 14.1% to US$49bn in 2021, following an 8.1% decline in the prior year.
Recorded inflows to Nigeria, the largest recipient country in the region, gained 11.2%, in part due to policies intended to channel inflows through the banking system. Nigeria’s Diaspora remittance inflow is set to increase by 7.1% in 2022 because of higher food prices and the continued adoption of official bank channels. According to the global bank, migrants will likely send more money to home countries that are now suffering extraordinary increases in the prices of staples. Growth in remittances was supported by strong economic activity in Europe and the United States.
Several actions have been taken by Apex bank to increase its foreign earnings, improve liquidity across the FX windows and encourage the inflow of diaspora remittances. On 30 November 2020, the CBN directed all IMTOs to pay funds to beneficiaries of diaspora remittances in foreign currency (US Dollars) as against the erstwhile Naira payment aimed at reducing pressure on the FX parallel market. In March 2021, the Central Bank of Nigeria (CBN) issued a circular to all Deposit Money Banks, International Money Transfer Operators (IMTOs), and the General Public, stating that all recipients of diaspora remittances through approved IMTOs and commercial banks shall receive N5 for every USD1 received as remittance inflow.
According to the Apex bank, this scheme is to encourage the inflow of diaspora remittances and was to take effect from 08 March 2021 till 08 May 2021 (two months) but was extended indefinitely following the expiration. We believe the initiative may have contributed to the increase in diaspora remittances.
The increase in diaspora remittances may have also been supportive of the country’s current account balance, which has been in a net deficit since Q1 2019. The country’s current account balance improved to a surplus of US$3.7bn in Q3 2021 (based on CBN provisional data), from a deficit of US$5.3bn in Q4 2020.