As the COVID-19 pandemic and economic crisis continues to spread, the remittance that migrant workers send home is projected to decline 14% by 2021 compared to the pre COVID-19 levels in 2019, according to the latest estimates published in the World Bank’s Migration and Development Brief.
Remittance flows to low and middle-income countries (LMICs) are projected to fall by 7%, to $508 billion in 2020, followed by a further decline of 7.5%, to $470 billion in 2021. The foremost factors driving the decline in remittances include weak economic growth and employment levels in migrant-hosting countries, weak oil prices; and depreciation of the currencies of remittance-source countries against the US dollar.
The declines in 2020 and 2021 will affect all regions, with the steepest drop expected in Europe and Central Asia (by 16% and 8%, respectively), followed by East Asia and the Pacific (11% and 4%), the Middle East and North Africa (8% and 8%), Sub-Saharan Africa (9% and 6%), South Asia (4% and 11%), and Latin America and the Caribbean (0.2% and 8%).
The importance of remittances as a source of external financing for LMICs is expected to amplify in 2020, even with the expected decline. Remittance flows to LMICs touched a record high of $548 billion in 2019, larger than foreign direct investment flows ($534 billion) and overseas development assistance (about $166 billion). The gap between remittance flows and FDI is expected to widen further as FDI is expected to decline more sharply.
This year, for the first time in recent history, the stock of international migrants is likely to decline as new migration has slowed and return migration has increased. Return migration has been reported in all parts of the world following the lifting of national lockdowns which left many migrant workers stranded in host countries. Rising unemployment in the face of tighter visa restrictions on migrants and refugees is likely to result in a further increase in return migration.
According to the World Bank’s Remittance Prices Worldwide Database, the global average cost of sending $200 was 6.8% in Q3 2020, largely unchanged since Q1 2019. This is more than double the Sustainable Development Goal target of 3% by 2030. The cost was the lowest in South Asia (5%) and highest in Sub-Saharan Africa (8.5%). Banks are the costliest channel for sending remittances, averaging 10.9%, followed by post offices at 8.6%, money transfer operators at 5.8%, and mobile operators at 2.8%.
Regional Remittance Trends
Remittance flows to the East Asia and Pacific region are projected to fall by 11% in 2020 to $131 billion due to the adverse impact of COVID-19. China and the Philippines are the region’s top recipients, while as a share of GDP, the top recipients are Tonga and Samoa. Remittance costs: The average cost of sending $200 to the region increased slightly to 7.1% in the third quarter of 2020. The five lowest-cost corridors in the region averaged 2.5%, while the five highest-cost corridors, excluding South Africa to China, which is an outlier, averaged 13.3%.
Remittances to countries in Europe and Central Asia are estimated to fall by 16% to $48 billion as the pandemic and fall in oil prices are likely to have wide-ranging impacts on economies, with nearly all countries in the region posting double-digit declines of remittances in 2020. The depreciation of the Russian ruble is also likely to weaken outward remittances from Russia. Remittance costs: The average cost of sending $200 to the region fell slightly to 6.5% in the third quarter of 2020 from 6.6% a year ago.
Remittance flows into Latin America and the Caribbean are expected to be about $96 billion in 2020, a decline of 0.2% over the previous year. Remittances to Colombia, El Salvador, and the Dominican Republic registered positive year-on-year growth between the months of June and September after falling sharply in April and May.
Flows to the region’s top recipient, Mexico, held up in part because migrants were employed in essential services in the United States and eligible migrants also benefitted from US stimulus programs. Remittance costs: The average cost of sending $200 to the region rose slightly to 5.8% in the third quarter. In many smaller remittance corridors, costs continue to be high. For example, the cost of sending money to Haiti and the Dominican Republic exceeds 8%.
Remittances to the Middle East and North Africa region are projected to fall by 8% in 2020 to $55 billion due to the projected persistence of the global slowdown. Remittances inflows to Egypt, the region’s largest recipient, have so far been countercyclical to the crisis, as Egyptian workers abroad increase one-off transfers to their families back home.
Flows are likely to eventually decline due to lower oil prices and slower economic growth in the Gulf countries, with major remittance-receiving countries likely to register falls in remittances. Remittance costs: The cost of sending $200 to the region rose in the third quarter of 2020 to 7.5%, compared with 6.8% a year ago. Costs vary greatly across corridors: the cost of sending money from high-income OECD countries to Lebanon continues to be in the double digits.
Remittances to South Asia are projected to decline by around 4% in 2020 to $135 billion. In Pakistan and Bangladesh, the impact of the global economic slowdown has been somewhat countered by the diversion of remittances from informal to formal channels due to the difficulty of carrying money by hand under travel restrictions. Pakistan also introduced a tax incentive whereby withholding tax was exempted from July 1, 2020, on cash withdrawals or on the issuance of banking instruments/transfers from a domestic bank account.
Bangladesh registered a large increase in remittance inflows in July after the floods that inundated a quarter of its landmass. Remittance costs: At just under 5% in the third quarter of 2020, South Asia was the least costly region to send $200 to. But costs are well over 10% in some corridors (from Japan, South Africa and Thailand, and from Pakistan to Afghanistan).
Remittances to Sub-Saharan Africa are expected to decline by around 9% in 2020 to $44 billion. Within the region, remittances to Kenya have so far stayed positive, though flows are likely to eventually decline in 2021. All major remittance-receiving countries will likely see a decline of remittances. As the COVID-19 pandemic affects both destination and origin countries of Sub-Saharan migrants, the fall in remittances is expected to further lead to an increase in food insecurity and poverty.
Remittance costs: Sending $200 remittances to the region cost on average 8.5% in the third quarter of 2020, representing a modest decrease compared with 9% a year ago. Sub-Saharan Africa is the costliest region to send remittances to. The promotion of digital technology, combined with a regulatory environment promoting competition in the remittances market and review of AML/CFT regulations, are essential to lowering remittances fees for the region.
The post COVID-19: Global remittance flows shrink 14% by 2021 appeared first on Payments Cards & Mobile.