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World Bank: The Most Severe Slump in Remittances is Expected Due to COVID-19

World Bank: The Most Severe Slump in Remittances is Expected Due to COVID-19

Remittances worldwide are reckoned to plunge severely by around 20% in 2020 because of the economic fallout prompted by the COVID-19 pandemic and shutdown. The predicted decline, which is expected to be the steepest in modern history, is mostly because of the drop in the employment and wages of migrant workers who are at a higher risk of losing jobs and remunerations during an economic crisis in a foreign country. The low and middle-income countries (LMICs) have been projected to lose remittances at least by 19.7% to $445 billion, symbolizing a loss of a vital financing lifeline for several vulnerable households.

Research shows that remittances mitigate various issues in lower-and-middle-income countries concerning poverty and nutritional outcomes. They also give way to higher spending on education, food, healthcare, and taper child labor in underprivileged households. A decline in remittances impacts the ability of families to incur expenditure on these areas since most of these finances will now be managed to address shortages of food and immediate needs for livelihood.

The Role of the World Bank Group

Remittances are an indispensable medium of income for developing countries. The continuing economic recession owing to COVID-19 is affecting the ability to send money home and making it all the more important to lessen the time of recovery in developed economies. As the World Bank Group enforces swift and wider action to support countries, the work is also carried out to keep the channels of remittances open and protect the poorest countries by continuously fulfilling their basic needs.

The World Bank is facilitating member states in keeping the track of the flow of remittances through different mediums, the costs, and convenience of mobilizing money and rules to safeguard financial integrity that is responsible for affecting flows of remittances. It is also associated with working along with G20 countries and the community worldwide to reduce costs of remittances and ameliorate financial inclusion for the poor.

Remittance Flows

The World Bank has estimated that in 2021, the remittances to LMICs will rise by 5.6% to $470 billion. The prospects of remittance still seem uncertain just like the impact of COVID-19, keeping in the picture the global growth and the measures implemented to contain the virus.

Strong systems of social protection are very important to protect the vulnerable and the poor during the crisis in developing as well as developed countries. The support to the migrant population should also be provided through social protection interventions in host countries.

Remittance Trends on a Regional basis

East Asia and Pacific

The flows of remittance increased by 2.6% to $147 billion in 2019, around 4.3 percentage points lesser than the growth rate in 2018. The flows of remittance are predicted to fall by 13% in 2020. The slowdown is anticipated to be escalated due to reduced inflows from the US, the largest sources of remittances to East Asia and the Pacific. Many countries relying on remittances especially those in the Pacific Islands could see households at higher risk. A rebound of 7.5% is expected in 2021.

Europe and Central Asia

Remittances are expected to decline by 28 % due to the combined effects of lower oil prices and global coronavirus outbreak much against the growth by 6% in 2019. The highest cost for sending remittances was from Turkey to Bulgaria whereas the lowest cost for sending remittances was from Russia to Azerbaijan.

Latin American and the Caribbean

The flows of remittances increased by 7.4% to $96 billion in 2019 whereas, in 2020, the flows of remittances to the region are expected to decline by 19.3%. The transfer cost of remittances is to increase due to certain challenges regarding foreign exchange, closure of offices, access to cash, and so on, encountered by service providers.

The Middle East and North Africa

As against the growth of 2.6% in 2019, the remittances are expected to fall by 19.6% to $47 billion in 2020. Apart from oil prices and pandemic, the depreciation of the euro against the US dollars is one of the reasons behind the decline. In 2021, due to moderate growth in Europe and weak GCC outflows, the remittances are expected to recover at a slower pace with 1.6%.

South Asia and Sub- Saharan Africa

The growth of remittances in 2019 was 6.1% whereas in 2020 the fall is expected by 22% owing to a slowdown in outflows from the United Kingdom, the United States, and EU countries to South Asia. In Sub-Saharan Africa, unlike other regions, the tiny fall of 0.5% was observed in 2019. In 2020, the flow of remittances has been predicted to decrease by 23.1% to reach $37 billion.

Conclusion

This unprecedented slump in global remittances is solely due to the unprecedented COVID-19 pandemic which has led to the fall in oil-prices, closure of industries, operational challenges leading to increased transfer costs of remittances, and much more. Hence, public authorities and major financial establishments will have to take quick actions to make the movement of remittances easier so it could facilitate much-needed support to the poor, low-income groups, migrants and their families.