The World Bank Group (WBG) is predicting that global remittances will decline sharply by about 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown.
The projected fall, the WBG estimates, would be the sharpest decline in recent history, explaining that the decline 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 WBG also says that, 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.
These are contained in the Migration and Development Brief and the latest migration and remittances data released by the World Bank.
Role of remittances in poverty eradication
According to the WBG data, studies have shown that remittances alleviate poverty in lower and middle-income countries and improve nutritional outcomes.
It again, added that remittances are associated with higher spending on education and reduce child labor in disadvantaged households.
However, it says a fall in remittances affect families’ ability to spend on the aforementioned areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs.
The World Bank Group President, David Malpass, says remittances are a vital source of income for developing countries and that the ongoing economic recession caused by COVID-19 is taking a severe toll on families in that part of the world.
“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.
Flow of remittances
To mitigate the impact of this projected decline in remittances, the World Bank says it is assisting member states in monitoring the flow of remittances through various channels, including the costs and convenience of sending money, and regulations to protect financial integrity that affect remittance flows.
Additionally, it is 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 percent), followed by Sub-Saharan Africa (23.1 percent), South Asia (22.1 percent), the Middle East and North Africa (19.6 percent), Latin America and the Caribbean (19.3 percent), and East Asia and the Pacific (13 percent)”, the WBG said.
Furthermore, the World Bank explains that 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”, it added.
Remittances to LMICs
the World Bank estimates that, in 2021, remittances to LMICs will recover and rise by 5.6 percent to $470 billion.
The outlook for remittance, it said, 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,” said Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank.
The global average cost of sending $200 remains high at 6.8 percent in the first quarter of 2020, only slightly below the previous year.
But Sub-Saharan Africa continued to have the highest average cost, at about 9 percent, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region.
“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,” said Dilip Ratha, lead author of the Brief and head of KNOMAD.
The Migration and Development Brief and the latest migration and remittances data are available via www.knomad.org.
Press release from World Bank
