According to the World Bank, global remittances are projected to decline sharply by about 20% in 2020 due to the economic crisis caused by the COVID-19 pandemic and the resultant effects of shutdowns. The projected decrease, which would be the steepest in recent history, is largely due to a fall in the wages and employment of migrant workers who tend to be more vulnerable to the loss of both during an economic crisis in a host country. Let’s check the opinions of some finance experts regarding this subject.
How is COVID-19 impacting diaspora remittances in developing countries?
“Migrant workers fear losing their jobs or having to take a wage cut in these uncertain times. Most of them stay in groups and fear becoming infected by the virus in a foreign land. A return to normality seems to be a long way off resulting in migrants holding on to money rather than choosing to send it back home. Long lockdowns have restricted access to local remittance outlets or banks resulting in a spike in the use of digital channels for remittances. Hence, online remittance has grown substantially in countries that have such infrastructure already in place. The final impact of COVID-19 on remittances will take some time to unfold. However, it seems that a reduction in remittance amounts and a rise in the use of digital channels are certainly clear direct impacts and, if the lockdown persists for a longer duration, the shape of the remittance industry may just become permanently altered on the other side of the pandemic.”
“COVID-19 brought to a halt a number of businesses in Europe due to the necessary harsh measures and the almost complete lockdown of societies. Job losses are huge and whole sectors of the economy have been brought to a complete stop. Bosnia and Herzegovina diaspora accounts for more than a million people, most of them in EU countries. While many of those with permanent residence and full-time jobs will find resources for living from the host country’s state aid, a large number of part time and seasonal workers have simply returned home and are currently without any income. When both positions are factored in, i.e. state aid and the loss of jobs, it may be assumed that the capacity for sending remittances to families back home is significantly lower than before the outbreak of the COVID-19 pandemic. It should be noted that personal consumption of the same group in the country of origin has also been decimated. Unfortunately, Bosnia and Herzegovina does not report remittances on a monthly basis so I can only guess that the decrease would be 25-30% if not more for the months of March, April and May 2020.”
“First, any reduction in remittance reduces ability to purchase essentials of life that leads to push majority of low and middle-income countries into abject poverty. Two, remittance has become the major source of foreign exchange. Foreign exchange earning coming from foreign employment surpasses the earning from export, tourism and international aid. Most of the developing countries would face difficulty in international payment. Three, jobs are cutting down in migrants receiving countries. These countries begin to send migrants in their home. Mass return of their citizens obviously can put pressure on the migrant sending country as jobs are unavailable for returnees. Thus, unemployment rises in an unprecedented manner. Four, the agriculture sector has been receiving less attention in labor sending country resulting a subsequent decrease in food production. Most of these countries in recent years import agricultural product to meet the demand of food products. Today, most of the countries band agriculture products to export. In this connection, food deficit can rise in labor sending countries where agriculture sector is getting less attention. Hunger would be next epidemic in the world.”
What are the main consequences of the decrease in remittances for developing countries?
“Migrants are more vulnerable to losing their jobs in host countries due to the global economic crisis the world is currently facing. Most of them are the first to be laid off or do not make the same living as they did before the virus hit their respective host countries due to partial or full lockdowns, curfews and shorter working hours. This will have an undesirable consequence on the receiving of remittances in developing countries as they tend to use these remittances to elevate themselves out of poverty. A disruption in remittances will also deny hard currency for developing economies, limit investment from the diasporas, result in the possibility of local currencies losing their current value and will possibly have a negative effect on foreign currency reserves.”
“Bosnia and Herzegovina benefits form diaspora remittances in a significant manner. Remittances contribute approximately 1.7 billion Euros to direct consumption in the local economy which is 10% of Bosnia’s current GDP. The latest data on the decrease of consumption in Bosnia and Herzegovina that has been collected from fiscal POS data indicates that, from mid-March through April 2020, consumption fell by 40-45% resulting in a sharp fall in VAT collection. I believe that it is hard to expect that diaspora remittances will fully recover by the end of the year so projections of a decrease by 20% p.a. seem realistic. It will also be interesting to see the data on local consumption for Q3 2020 as Q3 is always the peak in consumption due to diaspora visits for holidays. The loss of 20% of remittances may be compared to the loss of an equal percentage of government jobs, and of course it will have strong impact on the local economy. It will also affect the profitability of local banks, as they generate most of their profits from the provision of payment services.”
What should the international community do to mitigate the impact?
“In my opinion, there are a few important points which need to be addressed immediately by the international community including a reduction in the cost of remittances which is still very high for a large number of corridors, the development of robust online remittance infrastructures as accessibility to local banks or remittance centers is limited due to the ongoing lockdowns as this will allow migrants to effect remittance at any time without moving from their homes. Diaspora bonds are another way of supporting communities in remittance-receiving countries. Governments in these countries and diaspora groups in developed countries should come forward to support them. International communities should also come forward to help developing countries to building infrastructure to cope with the pressure caused by the reduction of remittances especially in areas of public health, education, and employment.”
„The extraordinary monetary and fiscal actions triggered by COVID-19 around the globe will impact the finances of developing countries for many years to come. Developed countries and International Financial Institutions such as WB and IMF as well as Regional Financial Organizations such as the AfDB, ADB and others must provide the necessary resources to shore up public finances and alleviate economic deterioration. Countries in the developing world are saddled with debt, have postponed debt payments for several years and allowed a moratorium on interest which can help to mitigate the loss of revenue and enhance the fiscal position of governments. Finally, the remittance lifeline must remain open for the smooth transfer of remittances to recipient countries.”
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