Steep drop in remittances will hurt countries that can least afford it

With businesses shut and travel restrictions in place, countries and households most dependent on money from overseas are at risk of facing poverty.

Migrants workers face risk of losing jobs from the coronavirus lockdown impact.
AP

Migrants workers face risk of losing jobs from the coronavirus lockdown impact.

People in countries like Nepal and the Philippines spend years saving money only so that one day they can buy passports and air tickets, which can take them to China or the Middle East in search of better jobs. 

Now a lot of them have to put their plans on hold as airlines are grounded, travel agencies shut and borders closed. Even more worrying is the fate of millions of households in developing countries that depend on foreign remittances. 

This year is going to be terrible for global remittances, which are projected to fall by 20 percent as a result of migrant workers losing jobs and wages, according to a World Bank report

Overall foreign remittances could come down from $714 billion last year to $572 billion in 2020. 

Remittances to low and middle-income countries could drop by 19.7 percent to $445 billion “representing a loss of crucial financing lifeline for many vulnerable households”, the report says. 

In 2019 the remittance flow to low and middle-income countries recorded the highest increase to $554 billion. 

Tonga, Kyrgyz Republic, Haiti, Tajikistan and Nepal are most vulnerable since remittances make up between 28 percent and 37.6 percent of their GDP. 

Remittances are money that overseas workers send to families in their home countries. For some, such as the Philippines, this makes up a large part of its foreign currency reserves. 

A massive drop in foreign direct investment (FDI) and portfolio investment, which goes into bonds and stocks, can compound a cash crunch for low income countries. 

Most migrant workers are employed in hotels, restaurants, the service industry and other sectors that have been worst-hit by the pandemic. 

Remittances have provided a cushion for developing countries in times of stress. Whenever there’s a natural calamity such as the 2015 earthquake in Nepal, expats send more money home. 

Migrant workers at risk

This time things could be different, as the countries where expats work are also facing lockdowns and employers are trying to cut costs by laying off workers. 

Poor countries like Nepal are at a particular risk. More Nepalis have succumbed to the new coronavirus pandemic in other countries than within Nepal. Many of the poorest Nepalis travel to neighbouring India, which has enforced a massive lockdown. 

On a per capita basis, Nepal exports the highest number of people in South Asia. 

When businesses shut their doors, they are more likely to fire foreign workers before locals. During the financial crisis ten years ago, the average unemployment rate for foreign workers in the European Union jumped from 11.1 to 16.4 percent, significantly higher than that for native Europeans. 

Workers, who were visiting their home countries and are unable to return to where they work, risk losing jobs. And not all of them are being helped by their governments. 

For instance, in the Philippines a subsidy of just $198 has been given to only those who haven’t been able to go back to China and not extended to those who work in Qatar or Kuwait. 

In the Gulf countries such as the United Arab Emirates and Saudi Arabia, there are concerns that migrant workers are being forced to leave. The UAE recently threatened to make work visa requirements more stringent for countries that were not taking back their citizens. 

Lockdowns in labour camps and dormitories, where many labourers in the Middle East live, increases the risk of contagion among the workers. 

The cramped conditions in which migrant workers live has come into the spotlight after a recent surge in cases in Singapore. 

“Over three‐quarters of these new cases were related to low‐skilled migrant workers housed in dormitories. There were more than 200,000 migrant workers from Asia residing in a total of 43 dormitories in the country,” the report notes.

Ripple effect

Bangladesh, India and Pakistan will all see more than a 20 percent decline in remittances. Nepal and Pakistan rely on remittances more than other South Asian nations. 

In Europe and Central Asia, Ukraine is the biggest recipient of remittances, receiving $19 billion last year. The Kyrgyz Republic, Tajikistan and Uzbekistan, whcih depend on remittances from Russia could see a sharp decline as a result of the drop in the price of oil that is expected to hit the Russian economy. 

In Latin America, countries such as Mexico, which are already bracing for the impact from a fall in the price of oil and tourism income, could see pronounced economic turmoil from the drop in remittances, forcing more people into poverty. 

Remittances contribute 3 percent to Mexico’s GDP but in some of its states, such as Michoacan, it adds 11 percent to the economy, according to The Washington Post. 

The Philippines, which last year received $35.2 billion in remittances, is expected to see a drop of 20 percent in inflows mainly because of a slowdown in the US and Hong Kong. 

In the Middle East, Palestine, Lebanon and Yemen are most vulnerable. 

In Africa, Nigeria, which received $23.8 billion last year in remittances, stands to lose the most. But compared to other African countries such as South Sudan it doesn’t rely on these inflows as much as its peers. 

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