SEATTLE, Washington — When people migrate from low-income countries to wealthier states, they often send money back home to their families. This money is called remittances and both individual households and national economies depend on it. In 2019, a record of $554 billion in remittances flowed from high-income countries to low and middle-income countries. But, since then, the COVID-19 pandemic has erupted, causing economic crisis and jeopardizing countless people’s livelihoods around the globe. The World Bank has estimated that in 2020, global remittances would drop by 19.7%, to only $445 billion.
Impact of Remittance Drop
What does that $110 billion drop in remittances mean for the developing countries that receive it? Normally, remittances help to provide for families in developing nations. Remittances keep tens of millions of people out of poverty, especially during times of crisis. Because the COVID-19 pandemic impacts people all over the globe, however, this particular time of crisis is the exception to that rule. As the pandemic causes migrant workers to lose their jobs abroad, they can no longer send money home and their relatives are left to endure the COVID-19 crisis without the usual level of economic support.
The fall in remittances also impacts developing nations’ bigger financial picture. Many developing countries rely on remittances to finance debt. Banks in these nations also use remittances as an inexpensive source of deposit funding. Under normal conditions, these inflows keep banks’ operations costs low. Additionally, the loss of remittances may hurt the private sector of developing nations’ economies.
This economic picture will only worsen if the COVID-19 pandemic forces migrant workers to return home to their origin countries. Once home, these former migrants will add pressure to the developing nation’s labor market and healthcare system. If they cannot return home, the migrants may instead add to the world’s refugee crisis.
The Countries Most Affected
In 2019, remittances flowed from 200 million migrant workers in 40 high-income countries to 800 million family members in over 125 developing nations. Some of those developing nations rely more heavily on remittances than others. Below is a list of the five countries that relied the most heavily on remittances from 2004 to 2018. The countries are ranked in order of the percentage of GDP that comes from remittances.
Tajikistan: Tajikistan is located in Central Asia, and depends largely on the economy of Russia. From 2004 to 2018, Tajikistan received an average of 30.57% of its GDP through remittances. The World Bank estimates that Europe and Central Asia will see the largest drop in remittances in 2020. The World Bank predicts that remittances to this region will fall by 27.5% this year.
Bermuda: Bermuda is a small British island territory located in the North Atlantic Ocean. Like Tajikistan, Bermuda received over 30% of its GDP through remittances from 2004 to 2018.
Tonga: Tonga is a Polynesian state in the South Pacific. Remittances to Tonga come from the United States, New Zealand and Australia. Tonga is located in the region which the World Bank predicts to see the smallest drop in remittances. The Bank estimates that remittances to East Asia and the Pacific will only drop by 13% in 2020. Still, Tonga’s heavy reliance on remittances puts the island nation in a vulnerable position.
Kyrgyz Republic: Like Tajikistan, the Kyrgyz Republic is located in Central Asia, and depends on Russia economically. Also like Tajikistan, the Kyrgyz Republic is in the region which the World Bank predicts will see the largest decline in remittances in 2020.
Nepal: Nepal is a country located in South Asia. The World Bank estimates that remittances to South Asia will fall by 22% in 2020.
In response to the drop in global remittances, 35 organizations have banded together to form the Remittance Community Task Force. The International Fund for Agricultural Development has led the Task Force, which has released specific recommendations for managing the impact of COVID-19 on the one billion people directly involved with remittances. The Task Force’s recommendations include making remittances an essential service during crises and lowering transaction fees to make sending remittances more affordable.
The World Bank predicts that in 2021, remittances to low and middle-income countries will begin to recover. The Bank anticipates remittances climbing by 5.6% back to $470 billion. While that number is far from the $554 billion in remittances exchanged in 2019, it is still a sign of hope. It is a suggestion that in time, remittances can again be the widespread safety net against poverty that it was prior to the COVID-19 pandemic.
– Emily Dexter