The collapse in migrant remittances represents worrying news for developing countries amid the pandemic—increasing the likelihood of balance-of-payments issues and delayed economic recoveries.
At greatest risk are countries with structural external imbalances that rely heavily on remittances. This includes countries like the Kyrgyz Republic, Nepal, Pakistan and Tajikistan—where remittances accounted for at least 40% of current account credits, even in pre-Covid times.
Some countries that saw an increase in remittances in 2020 (like Bangladesh) also are at risk, particularly if the factors that led to this rise are likely temporary.
The coronavirus (Covid-19) pandemic has had an enormous impact on international flows of migrant remittances, which represent a significant source of economic support for many poor countries. The World Bank estimates that global remittances fell by 7% in 2020, surpassing the 5% decline seen during the global financial crisis in 2009. Recessions in host countries have made it difficult for migrants to send money home, as they face increasing precarity and unemployment. Meanwhile, lockdowns and travel restrictions have created new obstacles to mobility, preventing would-be migrants from working overseas. A further 7% drop in remittances is expected in 2021, owing to the pandemic’s lingering effects on the global economy.
The drop in remittances spells trouble for many emerging economies that have already been hit hard by the global economic recession. Many developing countries rely on remittances as a source of external financing that now eclipses overseas development assistance and even foreign direct investment (FDI). For poor countries, a significant drop in remittances represents bad news on top of an already challenging economic and social situation. Notably, it risks further delaying their economic recovery, increasing the likelihood of balance-of-payments issues and placing new pressures on their (sometimes already frail) currencies.
While some countries may be in a fairly stable position, it’s important to note the elevated risks that may still exist at the local level. A country may face minimal balance-of-payments risks amid a drop in remittances, but for local communities that disproportionately depend on these flows, the consequences can be much more severe.
ANDREW VITERITTI, THE ECONOMIST INTELLIGENCE UNIT COMMERCE AND REGULATION LEAD
Our latest report examines the scope and nature of this threat. We find that not all remittance-receiving countries will feel the pinch, with some in a more precarious situation than others. At greatest risk are countries with structural current-account imbalances that rely heavily on remittances. These include Bangladesh, Egypt and Pakistan as well as a number of smaller economies (such as the Kyrgyz Republic, Nepal and Tajikistan).
Download our report “Covid-19 and migrant remittances: a hidden crisis looming?” to find out more.