Global Remittances and the Sustainable Development Goals

The Significance of Remittances for Development

Remittances, defined as personal monetary transfers from migrants, are a critical financial lifeline for nearly one in seven people globally. In 2024, formally channelled global remittances were estimated at over 904 billion USD. Of this, an estimated 685 billion USD flowed to low- and middle-income countries (LMICs), an amount greater than foreign direct investment and official development aid combined. These financial flows are fundamental to the achievement of the Sustainable Development Goals (SDGs), particularly SDG 1 (No Poverty) and SDG 2 (Zero Hunger), by providing direct household support and contributing to economic stability in recipient nations.

International Commitments to Reduce Remittance Costs

An international consensus has formed around the necessity of reducing the cost of sending remittances to maximize their developmental impact. This commitment is explicitly codified within the 2030 Agenda for Sustainable Development.

• SDG Target 10.c: Aims to reduce the transaction costs of migrant remittances to less than 3% and eliminate remittance corridors with costs higher than 5% by 2030.
• Addis Ababa Action Agenda (2015): Reinforces the commitment to the 3% cost reduction target.
• Global Compact for Migration (GCM) (2018): Objective 20 provides a detailed framework for states to take action to achieve the 3% target, promoting faster, safer, and cheaper remittance transfers.

These agreements underscore a global effort to enhance the contribution of remittances to sustainable development by ensuring more capital reaches its intended recipients.

Analysis of Remittance Transaction Costs

Current State of Transaction Costs

Despite international commitments, remittance transaction costs remain high. In the third quarter of 2024, the global average cost was nearly 7%, meaning that for every 100 USD sent, almost 7 USD was lost to fees. This figure does not account for additional losses through unfavorable foreign exchange rates. Such high costs represent a significant impediment to achieving SDG Target 10.c and reduce the funds available for families to invest in health, education, and entrepreneurship, which are key drivers of SDG 8 (Decent Work and Economic Growth).

Contributing Factors to High Costs

Several factors contribute to the persistently high cost of remittance transactions:

• Regulatory Frameworks: Post-9/11 security measures, including stringent Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulations, have increased compliance burdens on service providers.
• De-risking: Financial institutions have often opted to terminate or restrict relationships with remittance companies perceived as high-risk, rather than managing the risk. This reduces competition and drives up costs.
• Operational Costs: Stricter customer identification protocols and other regulatory requirements increase operational expenses for providers, which are passed on to migrants. This can limit access to formal channels, undermining financial inclusion goals related to SDG 10.

Case Study: United States Remittance Taxation Proposals

Historical Context of Remittance Taxation in the U.S.

The United States is the world’s largest source of remittances, with outflows totalling 98 billion USD in 2024. These funds are vital for the economies of recipient countries, including Mexico, India, China, and several Central American nations where they constitute 20-25% of GDP. Various proposals to tax these outflows have emerged over the past 15 years.

1. Oklahoma (2009): The state enacted a fee on outbound wire transfers, which generated 13 million USD in revenue in 2023-24 but was criticized for encouraging informal financial flows.
2. Federal Proposal (2015): Proposed a 7% tax on transfers by individuals unable to confirm legal status.
3. Federal Proposal (2017): Proposed a 2% fee on transfers to 42 Latin American and Caribbean countries, regardless of the sender’s status.
4. Federal Proposals (2022 & 2023): Mirrored the Oklahoma model with proposed fees of 5% and 10%, respectively.

The “One Big Beautiful Bill Act” (OBBBA) and its Provisions

In 2025, a proposal emerged to include a tax on remittance transfers within the “One Big Beautiful Bill Act” (OBBBA). The proposal involves a 1% excise tax on all cash-based remittance transfers, applicable to all senders, including U.S. citizens, effective from January 1, 2026. Notably, bank-to-bank transfers are exempt. This structure means the tax will disproportionately impact individuals without access to formal banking infrastructure, a direct contradiction of the principles of SDG 10 (Reduced Inequalities).

Projected Impacts of the Proposed U.S. Remittance Tax

Socioeconomic Consequences and Contradiction with SDGs

The imposition of a 1% tax, on top of existing high transaction fees, is projected to have severe consequences that directly undermine multiple Sustainable Development Goals.

• Undermining SDG 1 and SDG 2: The tax is estimated to reduce remittance flows by up to 1.6%. This reduction in financial support will directly impact household incomes, increasing poverty and food insecurity in nations heavily dependent on these funds.
• Exacerbating Inequality (SDG 10): The tax targets cash-based transfers, penalizing the unbanked and financially vulnerable. Countries in Central America and the Caribbean, which are highly dependent on U.S. remittances and have less developed banking infrastructure, will be hit hardest.
• Driving Irregular Migration: By increasing economic hardship in origin countries, the tax could paradoxically intensify the push factors for irregular migration, working against efforts to achieve safe, orderly, and regular migration as outlined in SDG Target 10.7.

Implications for the Global Financial System

The tax also poses risks to the stability and integrity of the global financial system.

• Shift to Informal Channels: To avoid the tax, senders may turn to unregulated channels such as cash couriers or cryptocurrency, reducing financial transparency and undermining the effectiveness of AML/CTF regulations.
• Increased Regulatory Burden: Money transfer operators will face increased compliance costs, which may be passed on to consumers, further elevating the total transaction cost away from the SDG 10.c target.
• Systemic Risk: The measure could threaten the stability of the U.S. dollar-based remittance system by reducing the international reserves of dollars in recipient countries.

Conclusion: A Challenge to the 2030 Agenda for Sustainable Development

The proposed U.S. remittance tax is in sharp opposition to the established international consensus on reducing remittance transaction costs. It directly contravenes the letter and spirit of SDG Target 10.c of the 2030 Agenda for Sustainable Development. By increasing costs and reducing flows, the tax threatens to reverse progress on poverty reduction, exacerbate inequality, and undermine the economic stability of developing nations. Furthermore, such a policy risks setting a damaging precedent that could be replicated by other countries, jeopardizing the global effort to harness remittances as a powerful tool for achieving the Sustainable Development Goals.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on remittance transaction costs and the proposed US tax directly or indirectly addresses several Sustainable Development Goals (SDGs). The analysis reveals connections to the following goals:

• SDG 1: No Poverty: The article highlights that remittances are a crucial financial support for dependent families and communities. A tax on these transfers could reduce the amount of money received, potentially pushing vulnerable families further into poverty. The text explicitly states the tax is likely to “increase… poverty”.
• SDG 2: Zero Hunger: Similar to the connection with poverty, the article notes that a reduction in remittance flows due to the proposed tax will hit the most dependent families hardest and is “most likely to increase hunger”.
• SDG 8: Decent Work and Economic Growth: Remittances are presented as a significant contributor to the national economies of several countries. For nations like Honduras, Guatemala, and El Salvador, remittances constitute “20-25% of their GDP”. A tax that reduces these flows could have “widespread macroeconomic implications,” thereby affecting their economic growth.
• SDG 10: Reduced Inequalities: This is the most explicitly mentioned SDG in the article. The text directly references the international consensus to reduce remittance costs, a key component of reducing inequality between and within countries. The proposed tax disproportionately affects migrants and their families, who are often in a more vulnerable economic position, thus exacerbating inequalities.
• SDG 17: Partnerships for the Goals: The article discusses remittances as a major source of external finance for low and middle-income countries, noting they are “more than foreign direct investment and development aid combined.” This relates to mobilizing financial resources for developing countries. Furthermore, the article centers on the “international consensus” articulated in global agreements like the “Addis Ababa Action Agenda” and the “2030 Agenda for Sustainable Development,” which are foundational to global partnerships. The US proposal is presented as a threat to this consensus.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the issues discussed, the following specific SDG targets can be identified:

1. Target 10.c: “By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent.” This target is explicitly mentioned in the article, which refers to the “explicit commitment to reduce remittance transaction costs to 3%” as part of the “2030 Agenda for Sustainable Development.” The entire article is framed around this target and the threat posed to it by the proposed US tax.
2. Target 1.a: “Ensure significant mobilization of resources from a variety of sources… to implement programmes and policies to end poverty in all its dimensions.” The article identifies remittances as a critical private financial flow (“migrants’ private capital”) that supports families in poverty. The proposed tax is shown to be a measure that would impede this resource mobilization.
3. Target 2.1: “By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations… to safe, nutritious and sufficient food all year round.” The article implies a direct link to this target by stating that the tax is “most likely to increase hunger” by reducing the financial support available to dependent families.
4. Target 17.3: “Mobilize additional financial resources for developing countries from multiple sources.” The article establishes remittances as a primary source of external finance for low and middle-income countries, amounting to “685 billion USD in 2024,” which surpasses FDI and development aid. The discussion revolves around the stability and cost-effectiveness of this financial flow.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several quantitative metrics that serve as indicators for the identified targets:

• Indicator 10.c.1 (Remittance costs as a proportion of the amount remitted): The article provides precise figures for this indicator. It states that “the global average cost for remittance transactions was nearly 7%,” which is more than double the SDG target of “3%.” The proposed US tax of “1%” would add to this cost.
• Indicator 17.3.2 (Volume of remittances (in United States dollars) as a proportion of total GDP): The article provides data relevant to this indicator. It mentions the total global remittance flow (“904 billion USD”), the flow to low and middle-income countries (“685 billion USD”), and the specific reliance of certain countries on these flows, such as Honduras, Guatemala, and El Salvador receiving “20-25% of their GDP” from US remittances.
• Other implied indicators: The article also contains other data points that can be used to measure the impact of policies on remittances:
  • The total remittance outflow from the US: “98 billion USD in 2024.”
  • The potential reduction in remittance flows due to the tax: “by up to 1.6%.”
  • The number of people affected: “40 to 50 million people in the US and, in consequence, potentially hundreds of millions of people globally.”

4. Table of SDGs, Targets, and Indicators

Source: ejiltalk.org