SEATTLE, Washington — The United Kingdom and Switzerland governments have taken the lead in providing relief for the global remittance fall caused by COVID-19. The relief efforts will fund programs that support migrant workers and increase access to digital remittance transfer systems.
The Worldwide Decline of Remittances
The World Bank expects that remittances will fall worldwide by 20% in 2020, a hit that will most significantly affect low- and middle-income countries due to the COVID-19 pandemic’s economic fallout. Remittances, or the money sent back home from the diaspora of a country, make up more than 5% of at least 60 low-and-middle-income countries’ GDP.
Not only do remittances improve the livelihoods of the individual families who receive money from overseas, but the International Monetary Fund also says remittances have been proven to help with countries’ trade deficits and are a vital source of tax revenue. Moreover, the World Bank reported remittances as a significant contributor to alleviating poverty. Studies have shown that remittances can increase spending on education, consumer goods, increase access to health services and decrease child labor rates.
The Reason Behind the Global Remittance
This global remittance fall, the U.K. government explained in a press release, is a result of physical distancing practices restricting access to remittance service providers, decreases in migrant wages, rising transfer fees and, in particular, the socio-economic effects of COVID-19. Migrants often work for limited income in jobs with minimal security, putting them in a perpetually precarious position and more vulnerable to COVID-19’s economic and health toll. The World Economic Forum reported that 75% of migrant workers work in nations where more than three-quarters of COVID-19 cases were reported. Though the global economy will suffer at large, this global remittance fall will affect Europe, Central Asia, Sub-Saharan Africa and South Asia most significantly.
The impact of this global remittance fall is compounded by the co-occurring drop in global foreign direct investment as a result of COVID-19’s global economic devastation and the borderless nature of the pandemic. Low-and-middle-income countries especially depend on global foreign direct investment for economic growth. Yet, the World Bank reported that in times of emergency, remittances generally tend to increase. However, since COVID-19 affects every country, migrant workers are either sending less money home or are returning home, which is causing additional strain on already overrun healthcare and economic systems.
A “Call to Action” Against the Remittances Fall
The U.K. and Switzerland, in partnership with international organizations, such as the World Bank, the United Nations, the International Organization for Migration, and along with countries such as Ecuador, Egypt and El Salvador, among others, released a global “call to action” against the fall of remittances. The international organizations and nations urged policy-makers, regulators and remittance service providers to increase accessibility and provide relief to those who send and rely on remittances.
The leading nations in this call to action, U.K. and Switzerland, have focused their relief efforts on improving access to digital financial services and have declared remittance services an “essential financial service” during the COVID-19 pandemic, allowing for social distanced access to physical sites. The two countries are lowering transfer fees, while the World Bank has encouraged the G20 members to do the same. The U.K. has already helped 65 million people living in low-and middle-income countries access digital financial services and an additional two million people worldwide. Additionally, the World Bank has urged host countries to support migrant workers through social protection programs and increase global financial regulation of exchange rates and interest.
Remittances were at an all-time high in 2019, immediately before the global remittance fall. Although the World Bank does expect remittances to recover in early 2021 with a 5.6% increase, the COVID-19 pandemic makes a recovery unpredictable. As such, international organizations and nations worldwide must follow the U.K. and Switzerland’s lead to alleviate the global remittance fall and aid disadvantaged populations depending on remittances.