World Bank Predicts Sharpest Decline of Remittances in Recent History

Global remittances are projected to decline sharply by about 20% in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. 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 $445 billion, 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 disadvantaged 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.

“Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies,” said World Bank Group President David Malpass. “Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs.”

The World Bank is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affects remittance flows. It is working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.

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 comes after remittances to LMICs reached a record $554 billion 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 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6% to $470 billion. The outlook for remittance remains as uncertain as 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.

Remittances to countries in Europe and Central Asia remained strong in 2019, growing by about 6% to $65 billion in 2019. Ukraine remained the largest recipient of remittances in the region, receiving a record high of nearly $16 billion in 2019. Smaller remittance-dependent economies in the region, such as the Kyrgyz Republic, Tajikistan, and Uzbekistan, particularly benefited from the rebound of economic activity in Russia. In 2020, remittances are estimated to fall by about 28% due to the combined effect of the global coronavirus pandemic and lower oil prices.

Remittance costs: The average cost of sending $200 to the ECA region declined modestly to 6.48% in the first quarter of 2020 from 6.67% a year earlier. The differences in costs across corridors in the region are substantial; the highest costs for sending remittances were from Turkey to Bulgaria, while the lowest costs for sending remittances were from Russia to Azerbaijan.

Remittances have been growing in Georgia since 2016 and exceeded 10% of GDP in recent years, reflecting stronger inflows from the EU and Israel. Transfers from abroad are an important source of income for Georgian citizens, with almost 20% of households reporting receiving money from relatives living abroad in 2019. The COVID-19 pandemic and the slump in commodity prices will affect the inflow of remittances to Georgia as some of the key remittances sending countries (i.e. Italy, Russian Federation, United States) are strongly impacted.

“Remittances are an important source of income for households in Georgia and the COVID-19 shock will reduce these inflows,” said World Bank Regional Director for the South Caucasus, Sebastian Molineus. “It will be important to ensure that these vulnerable groups are covered by the government’s crisis-response measures while working to further reduce the costs and time required to receive remittances.”

The Migration and Development Brief and the latest migration and remittances data are available at www.knomad.org. Interact with migration experts at http://blogs.worldbank.org/peoplemove/