Remittances are expected to plunge by about 20% due to the economic crisis induced by the COVID-19 pandemic. Global economic slowdown due to Covid-19 and the recent oil price drop will reduce remittance outflows from GCC countries, World Bank said. Money outflows from GCC to South Asia are projected to decline by 22% to $109bn in 2020. Countries expected to hit the hardest due to the sharp decline in foreign remittances will be Tonga, South Sudan, Somalia, and Haiti, and others.
The projected fall in remittances follows the growth of 6.1% in 2019, World Bank noted. Remittances to the Middle East and North Africa (Mena) region are projected to fall by 19.6% to $47bn in 2020, following the 2.6% growth seen in 2019. Due to the Covid-19 crisis, remittance flows to the Sub-Saharan Africa region are expected to decline by 23.1% to reach $37bn in 2020, while the recovery of 4% is expected in 2021.
In 2020, remittance flows to East Asia, and the Pacific region is expected to decline by 13%. Remittance flows to the East Asia and Pacific region grew by 2.6% to $147bn in 2019, about 4.3 percentage points lower than the growth rate in 2018.
According to the World Bank, global remittances are projected to decline sharply by about 20% in 2020 due to the economic crisis induced by the Covid-19 pandemic and oil price drop. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country.
Remittances to low and middle-income countries (LMICs) are projected to fall by 19.7% to $445bn, representing a loss of a crucial financing lifeline for many vulnerable households. Studies show that remittances alleviate poverty in lower- and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in poor households.
“A fall in remittances affects families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs,” World Bank noted.
Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5%), followed by Sub-Saharan Africa (23.1%), South Asia (22.1%), the Middle East and North Africa (19.6%), Latin America and the Caribbean (19.3%), and East Asia and the Pacific (13%).
The large decline in remittances flows in 2020 come after remittances to LMICs reached a record of $554bn in 2019. Even with the decline, remittance flows are expected to become even more important as a source of external financing for LMICs as the fall in foreign direct investment is expected to be larger (more than 35%).
In 2019, remittance flows to LMICs became larger than FDI, an important milestone for monitoring resource flows to developing countries. In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6% to $470bn.
“The outlook for remittance remains as uncertain as to the impact of Covid-19 on the outlook for global growth and on the measures to restrain the spread of the disease. In the past, remittances have been counter-cyclical, where workers send more money home in times of crisis and hardship back home. This time, however, the pandemic has affected all countries, creating additional uncertainties,” World Bank said.