Remittances could fall by $100 billion because of COVID-19 – here’s why that matters

payments

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Harry Kretchmer, Senior Writer, Formative Content


  • Remittances – the money sent home by individuals to family and friends – are in crisis because of the global economic downturn.
  • It comes after the total value of remittances reached $714 billion in 2019.
  • At least 60 low- and middle-income countries depend on remittances for more than 5% of GDP.
  • Economists and campaigners are urging for reductions in transfer fees and greater support for migrants in host countries.

The scale of remittances is vast. But it’s under threat.

The money sent home by around one billion workers overseas or internally to their families is collectively higher than either foreign direct investment or official development assistance. It was almost three-quarters of a billion dollars last year – a record sum.

But the World Bank estimates the global slump will wipe 19.7% – or $109bn – from the portion of this money that flows to the Low and Middle-Income Countries (LMICs) that need it most. Those economies are now bracing for the impact.

So far, the UK and Swiss governments have led a call for lower transfer fees, and economists and campaigners are calling for more support for migrant workers. But damage may be unavoidable.

 

Global remittances
Global remittances
Image: Pew Research Center

A vital flow

Remittances can help build a house, pay medical bills or send a child to school. But they don’t just help the family and friends to whom they are sent. They’re a central part of many economies, too.

According to the World Bank and the global migration think tank KNOMAD, in at least 60 LMICs, remittances account for more than 5% of GDP.

coronavirus, health, COVID19, pandemic

What is the World Economic Forum doing to manage emerging risks from COVID-19?

The first global pandemic in more than 100 years, COVID-19 has spread throughout the world at an unprecedented speed. At the time of writing, 4.5 million cases have been confirmed and more than 300,000 people have died due to the virus.

As countries seek to recover, some of the more long-term economic, business, environmental, societal and technological challenges and opportunities are just beginning to become visible.

To help all stakeholders – communities, governments, businesses and individuals understand the emerging risks and follow-on effects generated by the impact of the coronavirus pandemic, the World Economic Forum, in collaboration with Marsh and McLennan and Zurich Insurance Group, has launched its COVID-19 Risks Outlook: A Preliminary Mapping and its Implications – a companion for decision-makers, building on the Forum’s annual Global Risks Report.

Companies are invited to join the Forum’s work to help manage the identified emerging risks of COVID-19 across industries to shape a better future. Read the full COVID-19 Risks Outlook: A Preliminary Mapping and its Implications report here, and our impact story with further information.

But in several countries it’s much more: Tajikistan and Bermuda, for example, both depend on remittances for more than 30% of GDP. Other heavily-dependent countries include Nepal and Haiti. And the countries which rely on remittances the most often have economies which are already fragile.

According to the International Monetary Fund (IMF), this money often helps even out trade deficits, and provides a key source of tax revenue – particularly in terms of indirect taxes like value-added tax and sales tax.

Remittance flows
World Bank data shows the complex hotspots of remittance flows.
Image: WEF/Word Bank

A perfect storm

The extent of forecast recessions and depressions around the world are yet to be realized. But given the dependence of certain nations and populations on remittances, the conditions are in place for maximum impact.

These impacts are likely to be magnified by two factors: first, the pattern the coronavirus has taken; second, the intimate relationship between economies hosting migrant workers and their home countries.

It is a cruel irony that an estimated 75% of migrants work in nations where three-quarters of the COVID-19 cases have been reported.

Remittance
Remittance around the world.
Image: KNOMAD

This will magnify the economic impact of the problem. Economists describe remittances as ‘countercyclical’: when times are hard migrants can leave their home and send back valuable income, countering domestic economic shocks. However, the reverse can also be true.

And the consequences could be severe. For example, the IMF identifies potential downturns in some Gulf states as having the potential to trigger an exodus of migrant labour from the Middle East, North Africa and Southeast Asia.

This, in turn, could ratchet-up unemployment in home countries, pile pressure on fragile public health systems and even potentially exacerbate the refugee crisis.

Taking action

The quickest way to help migrant workers is to lower their costs – which at the moment can be significant. For example, overseas workers from sub-Saharan Africa who send money home pay, on average, one dollar in every 10 in payment transfer fees. Globally, fees average almost 7%.

“Quick actions that make it easier to send and receive remittances can provide much-needed support to the lives of migrants and their families,” urges Dilip Ratha, head of migration think tank, KNOMAD.

Remittance flows between low-to middle income countries.
Remittance flows between low-to middle income countries.
Image: World Bank-KNOMAD

“These include treating remittance services as essential and making them more accessible to migrants.”

The World Bank urges countries – both the hosts and the original homes of migrant workers – to put in place effective social protection systems.

Next year, the Bank estimates that remittances to LMICs will recover – although not to the levels seen in 2019. But the road to that recovery is likely to be a bumpy one.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

How is the global economy fairing 11 years after the financial crisis?

Microsoft says the internet is getting a little nicer

90% of European Jews say antisemitism is getting worse

Medical training without borders: what’s still missing?

Macron defends the idea of European sovereignty

EU values in Hungary and Poland: debate on recent developments

How Gen Z and Millennials can learn to love manufacturing jobs for real

UNICEF chief hopes 2020 will be ‘a year of peace’ for Syria’s children

EFSF/ESM boss tells half truths about Troika’s doings

Antitrust: Commission opens investigation into possible anticompetitive behaviour by the power exchange EPEX Spot

UN rights chief welcomes new text to protect rights of peasants and other rural workers

Planes can now fly for 21 hours non-stop. But are people ready?

COVID-19 has accelerated the digital transformation of higher education

5 milestones in green energy

Terrorism ‘spreading and destabilizing’ entire regions, Guterres warns States, at key Kenya conference

Venezuela: ‘Shocked’ by alleged torture, death of navy captain, UN human rights chief urges ‘in-depth’ investigation

More people now plan to get a COVID-19 vaccine than in December

It’s ‘time to #EndTB’, says UN on World Tuberculosis Day

COP21 Breaking News_04 December: Launch of CREWS, climate risk & early warning systems

Commission welcomes political agreement on EU4Health

Mergers: Commission approves acquisition of joint control over Prosegur Alarmas by Telefónica and Prosegur

UN chief and senior officials show solidarity with DR Congo during three-day visit

World Bank downgrades global growth forecasts, poorest countries hardest hit

Access to health in the developped and developing world

G20 LIVE: The European Sting covers online world news and the latest developments at G20 from Antalya Turkey

Commission unveils its first Strategic Foresight Report: charting the course towards a more resilient Europe

Anti-Semitism ‘toxic to democracy’, UN expert warns, calling for better education

School closures triple in Central and Western Africa as education comes under fire

A fairer world requires fairer tech. Here’s why

‘Rare but devastating’ tsunamis underscore need for better preparation, UN chief urges on World Day

Thousands of Belgian schoolchildren have gone on strike to protest climate change

Relations with the UK: Commission proposes targeted contingency measures to prepare for possible “no-deal” scenario

Fight against money laundering and terrorist financing: Commission assesses risks and calls for better implementation of the rules

UN chief welcomes prisoner exchange between the Russia and Ukraine

Most people on the internet live in this country

Meet the Junior Enterprise network at JEWC 2014!

UN chief urges Somalis not to be ‘deterred’ by latest deadly terror attack

The EU lets the bankers go on rigging the benchmarks

Robots will soon be a necessity but they won’t take all our jobs

How to future-proof India’s economy

Getting people with disabilities into work requires data

EU Solidarity in action: Commission proposes to mobilise almost €530 million to support emergency measures against the coronavirus pandemic

Adoption of new rules to better protect children caught in cross-border parental disputes

How to maintain mental health in times of pandemic

Turkey: Commission continues humanitarian support for refugees

5 Black heroes of the environmental movement

Developing countries should not be liable for emissions ‘accumulated throughout history’, key UN development forum hears

“We always honor our words, and in that respect we expect our partners to honor their words as well”, China’s State Councillor and Foreign Minister Wang Yi highlights live from Brussels

Ethiopia planted 350 million trees in a day. And its fight against deforestation does not stop there

Energy Union: Commission calls on Member States to step up ambition in plans to implement Paris agreement

7 innovative projects making cities more sustainable

How can we make enough vaccine for 2 billion people?

Khashoggi murder trials must public and meet international standards, UN expert urges

These refugee children have danced in the snow for the first time

In Tunisia, budding entrepreneurs can take a year off their job

Why our future relies on more inclusive and transparent innovation

Closing VAT loopholes for sales through online platforms

‘Cataclysmic events’ in Hiroshima, Nagasaki, began ‘global push’ against nuclear weapons says Guterres, honouring victims

Science is ‘key’ to pushing forward the 2030 Agenda, UN development forum told

UN programme to help spare millions from child marriage, extended to 2023

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s