High oil prices are starting to strain poor countries' budgets and will depress growth rates this year and next, but record remittances are proving a useful counterweight, the World Bank said on Wednesday.
Developing countries will get more than twice as much money from expatriate workers than all other development aid combined in 2005, the bank said in its Global Economic Prospects study.
Remitted pay, normally sent as cash through money transfer firms like Western Union or MoneyGram, was linked in the report to drops in the prevalence of poverty estimated at 11 percent in Uganda, 6 percent in Bangladesh and 5 percent in Ghana.
"They are also associated with increased household investments in education and health, as well as increased entrepreneurship," the World Bank said, estimating total remittances would top $232 billion in 2005.
The funds should help developing countries weather an output slowdown related to rising interest rates and elevated energy prices, the Washington-based multilateral lender said.
It estimated developing countries' economies would grow 5.9 percent this year and 5.7 percent in 2006, slowing down after a 6.8 percent expansion rate last year.
"The increase in the oil price since 2004 is expected to generate substantial economic costs for oil-importing poor economies that are not fully captured in the GDP numbers," said Andrew Burns, an author of the report.
Unless the most vulnerable poor countries receive assistance soon to cope with high energy prices, the World Bank said "they may be forced to cut essential non-oil imports."
High-income countries will also see growth rates slow to 2.5 percent both this year and next, after a 3.1 percent output acceleration in 2004, the bank said.
With nearly 200 million people now living as expatriates globally, the World Bank said both developing and developed countries need to pay more attention to the links between migration, economic growth and poverty.
"An increase in migrants that would raise the work force in high-income countries by three percent by 2025 could increase global real income by 0.6 percent, or $356 billion," the lender said in the report, released both in Washington and Geneva.
"Remittances and migration should be seen as a complement to local development efforts in low-income countries," it said, stressing funds migrants send home, while helpful, should not be seen as a straight substitute for development aid.
The World Bank also took aim at crippling service fees levied against poor workers' remittances, which are often sent at frequent intervals and in small amounts.
It said more competition among money transfer businesses should lower the charges, which can amount to as much as 15 percent of cash transactions.
"Remittances are hard-earned income that, in most cases, has already been taxed," said World Bank chief economist Francois Bourguignon. "They should not be taxed again, and governments should not try to count them as development aid."
Financial regulators should also take care not to clamp down on remittances in their bid to root out money laundering, fraud and other criminal transactions, the bank said.
"While regulation is necessary to curb money laundering and terrorist financing, it must be implemented in a way that does not interfere with the objective of reducing remittance costs," it said.
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