The World Bank has predicted global remittances, the money sent home from people working abroad, will fall by around 20% in 2020 as economic activity grinds to a halt due to the coronavirus pandemic and labor migrants lose wages and access to remittance services.
The Bank, which released a report on the issue today, recommends making remittances cheaper and classifying them as “essential” services to prevent families falling over the edge into severe poverty.
“Migrant remittances provide an economic lifeline to poor households in many countries,” reads the report. “A reduction in remittance flows could increase poverty and reduce households’ access to much-needed health services.”
In 2019, low- and middle-income countries (LMICs), commonly known as developing countries, received around $554 billion in remittance flows, a larger amount than all the foreign direct investment (FDI) flowing into those countries that year (excluding China). Now, as shops and work-sites shutter around the world, freezing the wages of many migrant workers, the World Bank predicts remittances will decline 19.7% in 2020, to $445 billion. All recipient regions will be affected, with the bank highlighting Europe and Central Asia, Sub-Saharan Africa and South Asia as regions which will see a fall of more than 20%. The bank said this decline is “unprecedented,” with the closest comparison being the Global Financial Crisis, when remittances fell around 5%.
“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.
Families in developing countries are often reliant on the income generated by remittances, with some 800 million people living in households that receive them. “Many of those who receive remittances do not have any other social safety net, so the reduction in remittances will hit them hard,” says Panu Poutvaara, economist at the University of Munich and the Ifo Institute and a member of the German Expert Council on Integration and Migration. “I do not expect widespread famine, but tens of millions more are likely to end up in severe poverty. Unfortunately, when the cut in remittances is combined with other shocks hitting poor countries, like the collapse of tourism and steep declines in exports, there is going to be a steep increase in global poverty.”
Remittance income is crucial not just in supporting individual families at subsistence level, but lifting them, and their communities, out of poverty. “Remittances are extremely important for global development now,” says Michael Clemens, an immigration expert and economist at the Center for Global Development. He notes that remittances account for three times as much money as the world’s combined overseas aid, and are in some ways more effective as “almost no foreign aid goes directly into the pockets of low income households and that is primarily what remittances do.” He says the income from labor migration, via remittances, is often “the very highest return investment available to many of the world's poor.”
One way the World Bank recommends easing the decline is by lowering the cost of remittances, which has long been part of the United Nations’ Sustainable Development Goals for eradicating global poverty. According to the bank, the average cost of a remittance transfer was 6.8% in the first three months of 2020, well above the 3% target set by the Sustainable Development Goals.
To make matters worse, migrants' access to remittance service providers (RSPs) has suffered from lockdown measures put in place to fight the spread of coronavirus. The report notes that some of this is alleviated by the take-up of digital transfer services, but that still leaves many people without. “Poorer and irregular migrants have lower or no access to digital payment instruments to fund or disburse the remittance transaction, such as bank accounts, payment cards or mobile wallets.”
The report recommends making remittances cheaper and easier by, for instance, offering tax incentives to RSPs to lower transfer costs, as well as declaring them essential services, meaning they could stay open along with supermarkets and pharmacies. It also recommends lightening regulatory barriers to entry for digital remittance providers.
“Quick actions that make it easier to send and receive remittances can provide much-needed support to the lives of migrants and their families,” said Dilip Ratha, lead author of the World Bank report. “These include treating remittance services as essential and making them more accessible to migrants.”
The bank estimates that remittances to LMICs will grow again by 5.6% in 2021, up to $470 billion. It also notes, however, that with the uncertainty around how long the coronavirus pandemic will last, or whether it will recur, it is unclear when remittances will reach their pre-COVID-19 levels. Remittances are often counter-cyclical in times of more localized crisis for recipient countries, meaning workers in more protected economies send more money back home to support their families, but as the pandemic is affecting all countries, this may not be the case.
Economist Panu Poutvaara is not optimistic about when remittances will get back to normal: “A lot depends on how fast economies in countries in which migrant workers reside recover. I am afraid that it will last several years before pre-pandemic remittance levels are reached again.”
SOURCE: Forbes
