Big money: billions of dollars flow as remittances to Hungary

Hungarians working abroad are an important feature of the economy, not only because they contribute to the labour shortage in the country’s workforce but also due to the billions of dollars in remittances they send back to Hungary every year.

Experts on the Hungarian labour market and economy discussed the impact of Hungarians working abroad at a conference organised by the Hungarian Economic Society, reports novekedes.hu. The discussions summarised the key points regarding the magnitude of remittances to Hungary.

Emigration and labour shortages: intertwined processes

One fundamental thesis of the conference was that the Hungarian labour market has faced labour shortages for years. A primary policy objective, therefore, should be to integrate currently untapped labour reserves into the economy to alleviate these shortages.

One such “reserve” group consists of individuals who have chosen to work abroad for various reasons, often contributing to the economy by sending remittances to Hungary. These workers impact not only the size of the labour force but also the sustainability of social welfare systems, as they pay taxes elsewhere, and the Hungarian economy in general. Their repatriation is thus crucial for the provision of social care, economic growth and competitiveness.

Emigration, however, is a very complex issue, as Barna Szabó, a researcher at the Institute for Balance, pointed out. While it might positively affect some economic indicators, he highlighted that:

“The socio-economic effects of emigration paint a nuanced picture. One consequence of a declining population due to emigration and fewer active workers is that unemployment has fallen in Hungary. Many people who were unable to find work, especially in the early 2010s, sought opportunities abroad, thereby reducing social expenditure on Hungarian public finances.”

According to UN data, in 1990, there were slightly fewer than 400,000 Hungarians (originally born in Hungary) living abroad. By 2020, this number had risen to more than 714,000, with the 2010s seeing a steep rise in those who left the country: between 2010 and 2020, the number of Hungarians born in Hungary but living and working abroad increased by 200,000 people.

It is also important to note that, in terms of relative rates of emigration, Hungarian figures are not abnormally high in the region: while in Hungary, 4.4 percent of 20-64-year-olds live abroad, the figure is over 18 percent in Romania.

Expatriate workers’ remittances to Hungary: a regional high

As novekedes.hu highlights, the amount of money transferred by diaspora Hungarians to the country is particularly high when looking at regional data and has shown a steady increase over the past 10-15 years. Over the last decade, remittances to Hungary have accounted for 2-3% of GDP, roughly USD 5 billion in 2018.

In 2020, analysts noted a sharp drop in personal transfers, presumably due to the pandemic, with the figure falling to USD 3.5 billion in 2021 and rising only moderately to USD 3.8 billion in 2022.

Remittances to Hungary hold special significance in the economy, the economists highlighted. On the one hand, there is a natural cyclicality in the allocation of European Union funds (due to the seven-year lifecycle of the long-term EU budget and the timing of the tenders). This cyclicality means EU funds are not consistent, and political debates might slow or freeze funding. On the other hand, foreign direct investment (FDI) might stall due to fluctuations in the global economy. In contrast, remittances are a much more stable flow of capital.

Future predictions for the Hungarian labour market

Regarding the future, Barna Szabó said, “In Hungary, the dynamics of emigration and immigration have been largely determined by the relative position of the domestic economy and the economies of the eurozone and the UK over the past decade. The period between 2023 and 2028 will thus have a slight negative impact on the size of the Hungarian labour supply, close to zero overall.”

By 2028, remittances are estimated to be around USD 3.6 billion, as the number of Hungarians living abroad is on a relative downward trend.

It is important to underline that, in addition to stopping emigration, encouraging people to return home is also vital for the Hungarian economy, novekedes.hu highlights. The return of 10 percent of the working-age citizens who emigrated after 2004 would result in an annual growth surplus of 0.02-0.12 percentage points until 2028, while the return of 33 percent of working-age citizens would result in a growth surplus of 0.06-0.45 percentage points in the Hungarian economy.