Global remittances are projected to decline sharply by about 20 per cent in 2020 due to the economic crisis created by the COVID-19 pandemic and subsequent economic shutdowns across the world.
The projected fall, which is expected to be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country.
A World Bank report dated April 20 noted that remittances to low and middle-income countries (LMICs) are projected to fall by 19.7 per cent to $445 billion, representing a loss of a crucial financing lifeline for many vulnerable households.
Over the years, remittances alleviate poverty in lower and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in disadvantaged households.
A fall in remittances affect families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate needs.
“Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies,” said World Bank Group President, David Malpass.
“Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs.”
The World Bank said it is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affect remittance flows.
It is also working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.
Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5 per cent), followed by Sub-Saharan Africa (23.1 per cent), South Asia (22.1 per cent), the Middle East and North Africa (19.6 per cent), Latin America and the Caribbean (19.3 per cent), and East Asia and the Pacific (13 per cent).
Data showed that remittances to Sub-Saharan Africa registered a small decline of 0.5 per cent to $48 billion in 2019. Due to the COVID-19 crisis, remittance flows to the region are expected to decline by 23.1 per cent to reach $37 billion in 2020, while a recovery of 4 per cent is expected in 2021.
The anticipated decline can be attributed to a combination of factors driven by the coronavirus outbreak in key destinations where African migrants reside including in the EU area, the United States, the Middle East, and China.
These large economies host a large share of Sub-Saharan African migrants and combined, are a source of close to a quarter of total remittances sent to the region.
In addition to the pandemic’s impact, many countries in the Eastern Africa region are experiencing a severe outbreak of desert locusts attacking crops and threatening food supply.
The report showed that sending $200 remittances to the region, for instance, cost 8.9 per cent on average in the first quarter of 2020, a modest decrease compared with the average cost of 9.25 per cent a year before.
The most expensive corridors are observed mainly in the Southern African region, with costs as high as 20 per cent. At the other end of the spectrum, the less expensive corridors had average costs of less than 3.6 per cent.
The large decline in remittances flows in 2020 comes after remittances to LMICs reached a record $554 billion in 2019.
Even with the decline, remittance flows are expected to become even more important as a source of external financing for LMICs as the fall in foreign direct investment is expected to be larger (more than 35 percent).
In 2019, remittance flows to LMICs became larger than FDI, an important milestone for monitoring resource flows to developing countries.
In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6 per cent to $470 billion.
The outlook for remittance remains as uncertain as the impact of COVID-19 on the outlook for global growth and on the measures to restrain the spread of the disease. In the past, remittances have been counter-cyclical, where workers send more money home in times of crisis and hardship back home.
This time, however, the pandemic has affected all countries, creating additional uncertainties.
“Effective social protection systems are crucial to safeguarding the poor and vulnerable during this crisis in both developing countries as well as advanced countries. In host countries, social protection interventions should also support migrant populations,” Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank, said.
Meanwhile, the global average cost of sending $200 remains high at 6.8 per cent in the first quarter of 2020, only slightly below the previous year.
Sub-Saharan Africa continued to have the highest average cost, at about 9 per cent, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region.
Dilip Ratha, lead author of the brief, noted that quick actions that make it easier to send and receive remittances can provide much-needed support to the lives of migrants and their families.
“These include treating remittance services as essential and making them more accessible to migrants,” he explained.
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