Looking Across

Migrant economic remittances are an important and growing source of foreign funds for many countries. In 2019, remittance inflows surpassed Foreign Direct Investment (FDI) for the first time as the leading source of external finance for low and middle-income countries globally, and this trend has again continued from 2022 (post COVID-19). In 2023, remittances to the Pacific amounted to US$1.294 billion and the Asia-Pacific region accounted for 38 percent of the global remittance inflows remaining the largest recipient of international remittances. In terms of remittances as a share of gross domestic product (GDP), two of the top five countries worldwide in 2023 were in the Pacific – Tonga ranked first at 43 percent of GDP and Samoa ranked fourth at 28 percent of GDP with four out of every five households in these countries receiving remittances. In Samoa, remittances remain the largest source of external financing flow. 

Unlike some other financing flows, remittances act as shock-absorbers and economic buffers during times of financial crisis or natural disaster. However, remittances often go through intermediaries who charge high fees and have complex regulatory environments. While World Bank data does not disaggregate East Asia and the Pacific average, estimates suggest that the average cost to send remittances to Pacific Island nations is among the highest globally, hovering at about 9 percent, three times higher than the SDG target.

Remittances are projected to reach US$1 trillion annually across the globe before 2030 and will therefore play an increasingly important role in filling the US$4.3 trillion annual development financing gap. This is particularly true in the context of declining foreign aid. Findings from the Lowy Institute Pacific Aid Map show that Official Development Financing to Pacific Island nations plummeted by 18 percent between 2021 and 2022, its largest annual decline on record. This was primarily the result of fading COVID-19 support, however cuts to global aid budgets and the Russia-Ukraine War also contributed to donors diverting resources away from the Pacific. In 2025, many governments have been slashing their foreign aid budgets – by 40 percent in the UK, 37 percent in France, 30 percent in the Netherlands, 25 percent in Belgium, and the United States is on track to cut up to 90 percent of its aid budget equating to around US$54 billion (though accurate data is hard to obtain). Meanwhile, the Pacific’s largest donor, Australia, is redirecting a modest AUD$119 million to the Pacific to plug some gaps left by other countries’ cuts and has recently increased its foreign aid budget by AUD$135 million (generally in line with inflation), however the gap is ever widening.

Looking Ahead

Temporary and permanent migration from Pacific Islands nations is likely to increase, spurred by economic and environmental drivers and made easier through transnational agreements and expanding migration and labor mobility schemes, particularly in Australia, New Zealand and the United States. 

How, then, can remittances be leveraged to maximise sustainable development? 

One option is to reduce the cost of sending remittances by collaborating with relevant governments, financial institutions and international partners to build strategic partnerships and promote competition among service providers. In one estimate, the cost savings from switching to the lowest-cost remittance service providers for Tongan temporary migrant workers in Australia and New Zealand equates to a gain of 2.3 percent of the total remittances sent, which is significant given that remittances constitute nearly half of Tonga’s GDP. Migrant Development Banks offer another possible pathway to get more bang for buck while also providing opportunities to channel remittance flows into sustainable development investments. However, these solutions must be accompanied by stable banking services, which are declining throughout the Pacific, with countries such as Australia, New Zealand and the United States potentially best placed to play a role. 

Increased digitalisation through alternative transnational payment systems is also an option and is making some ripples in the Pacific. Blockchain technology and cryptocurrency have been proposed as a possible but risky and difficult-to-implement solution that potentially offer more efficient, accessible secure, and cost-effective means of transferring funds, with transfer fees ranging from one to three percent. A safe and effective (non-traditional) regulatory framework, along with integrated environmental sustainability, is vital to ensure enhanced digital options contribute positively to development without compromising financial and ecological stability. Appropriate digital infrastructure is another challenging yet important enabler for alternative payments systems, with Pacific Island nations at different points on this journey. 

Another opportunity is to leverage innovative financing instruments such as diaspora bonds, which are debt instruments issued by governments to nationals living abroad or to their descendants to raise financing from its overseas diaspora/investors. Diaspora bonds have been implemented with varying degrees of success globally but are on the radar of many countries with large diasporas. Diaspora bonds are typically less volatile than other international borrowing, providing a stable foundation for finance long-term projects (such as ICT in India). Diaspora bonds require a high degree of trust by diaspora in their country-of-origin government; countries that have weak governance diaspora bonds may require support for institutional strengthening from multilateral or bilateral agencies.

Ultimately, the tide of remittances is rising as a powerful force in development finance yet must be navigated with curiosity and care. Just as Pacific wayfinders charted vast, uncertain waters by remembering their origins and keeping a clear vision of what they were seeking, we too must steer towards new currents – harnessing efficiency gains, digitalisation, and innovative financing instruments – with clarity, purpose and humility. In this new era, remittances offer exciting possibilities that should complement, not replace, domestic revenue foreign aid.

Questions for the Future

• Will innovative climate adaptation solutions be durable enough to reduce migration pressure?
• To what extent could improved connectivity, alongside AI and remote work options, transform labor mobility without physical migration?
• What might happen geopolitically to largely depopulated states?
• How could the creation of a Pacific regional citizenship, or expanded free movement agreements across the Pacific, reshape the region?

Potential Impact on Development

High at present with the likelihood of becoming very high is not addressed in the short to medium term.