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The World Bank predicts a 20% decline in global remittances due to the economic crisis induced by the Coronavirus pandemic. Remittances could fall from $714 billion in 2019 to $572 billion in 2020, the World Bank report said.
The projection of the sharpest decline in recent history is primarily due to a fall in earnings due to loss of employment during an economic crisis in the major host countries, according to the Migration and Development Brief, that covers migration and remittances. The other additional factors are a crash in oil prices and an overall decline in the health of the migrant workers who are vulnerable to the virus due to the living conditions.
In the past, remittances have been counter-cyclical, migrants would typically send money home, which provided a cushion for developing countries in times of crisis and hardship. As we have seen in the 2015 earthquake in Nepal and Kerala Floods in India. This time, it is different, this is a global issue. Coronavirus pandemic has affected all countries and infected over 3 million people worldwide.
Protect the locals first
Major remittance sending host countries have implemented lockdowns, travel bans, and social distancing in an effort to control the spread of the virus. With businesses shut and travel restrictions in place, economic activities have been brought to a near standstill, prompting a huge spike in unemployment and overall economic decline in the host countries.
As the world braces itself for a recession, businesses are more likely to fire foreign workers before native-born workers. During the financial crisis of 2008, the average unemployment rate for foreign workers in the European Union jumped from 11.1 to 16.4%, significantly higher than that for native Europeans. By April 2020, 22 Million Americans had filed for unemployment in the United States.
Risk of contagion
In addition to lost earnings, migrants also face the risk of contagion due to the living conditions and health insurance coverage. In countries like Singapore and the Middle East, migrant workers live in cramped conditions, which has come to the spotlight in the relapse of Coronavirus.
More than 200,000 migrant workers from Asia were residing in a total of 43 dormitories in the country as per the report by the Guardian. Low-wage migrant workers accounted for at least 60% of the total infections in Singapore.
It is a similar story of lockdown in labor camps and dormitories for migrant workers in the Middle East countries.
Heavy impact in the low and middle-income countries
Studies have proven that remittances have lifted many vulnerable households in developing countries. Remittance also has shown higher spending on education, healthcare, and entrepreneurship. On a national level, remittances contribute significantly to its foreign currency reserve.
For some, as in the case of Nepal, remittances accounted for 30% of the total Gross Domestic Product last year. Nepal exports the highest number of overseas workers on a per capita basis in Asia.
In 2019, remittances to low and middle-income countries (LMICs) reached a record of $554 billion, which was higher than Foreign Direct Investment (FDI) in 2019. In 2020, remittance flows are projected to fall by 19.7% to $445 billion. By 2021, the World Bank estimates that remittances to LMICs will recover by 5.6% to $470 billion.
Remittances to South Asia are projected to decline by 22% to $109 billion in 2020. Overseas workers from countries like Nepal and the Philippines take out loans and spend years saving money, in order to find jobs abroad, to provide a better life for the families.
India was the top recipient of remittances with a total of 82 billion dollars in 2019. New prediction by the World Bank suggests a fall of 23% in deposits by the non-resident Indian (NRI) deposits into India for the last week of April alone.
The Philippines, another top recipient of remittances in the world with $35.2 billion in 2019. World Bank has predicted a drop of 13% in 2020.
Mexico's economy has been severely affected due to fall in oil prices, tourism, and exports, now with the drop in remittances, we are likely to see a pronounced negative impact.
Also, read:
The economic impact of Coronavirus pandemic on the Philippine economy
The economic impact of Coronavirus pandemic on the Nepalese economy
The economic impact of Coronavirus pandemic on the Sri Lankan economy
Cryptocurrency
The average global cost of sending $200 is 6.8% globally according to the data by the World Bank. While the average cost of remitting to South Asian countries is at 4.95% with some corridors below the 3% Sustainable Development Goals target, Africa was at 9%. High competition amongst the remittance service providers due to the high volume of remittances and adoption of technology has been cited as the main factors contributing to success.
The blockchain and the crypto players have long sought to establish a footprint in the sector by solving the major challenges plaguing the remittance industry. And in our earlier predictions, 2020 was going to be the year of blockchain companies and cryptocurrencies specializing in cross-border payment.
Now, due to the coronavirus pandemic, we are yet to see if big players like Ripple can make a meaningful impact on the remittance sector.
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