Remittances decline because of COVID-19
Global remittances, or the amount of cash sent home by migrants, is predicted to drop by as much as 20 per cent in 2020 because of the economic crisis brought on by the COVID-19 pandemic, according to a report by the World Bank.
The predicted fall, which would 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, the World Banks says.
Remittances to low and middle-income countries (LMICs) are projected to fall by 19.7 percent to $445 billion, representing a loss of a crucial financing lifeline for many vulnerable households.
Remittances mitigate poverty in lower-and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in disadvantaged households, the World Banks says.
World Bank Secretary General David Malpass said in a statement that 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 livelihoods 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,” Mr Malpass said.
“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,” he said.
The report says 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).
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 per cent).
In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6 percent 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,” the report says.
The global average cost of sending $US200 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, the report says.
The World Bank says 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.
“We are working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor,” Mr Malpass said.