Global remittances resilient despite Covid-19 headwinds, EFG Hermes says

Investment bank warns of a potential drop in inflows to recipient countries in the next 12 to 18 months

Pakistan, Bangladesh and Sri Lanka saw record levels of remittances during the summer, according to EFG Hermes. Photo: The National Archives

Global remittances remained resilient in the months following the outbreak of Covid-19 despite job losses and falling incomes, according to EFG Hermes.

Pakistan, Bangladesh and Sri Lanka saw record levels of remittances during the summer, while all the major sources of remittances showed strong growth, including the GCC, the US, the UK, and to a lesser extent Europe, the investment bank said in a note released on Monday.

“The numbers are inflated by the fact that some sizeable flows – which previously went through unofficial channels – are now recognised in reported data as they are passing through official channels largely due to movement restrictions,” the EFG Hermes note said. “Large transfers are also partially a reflection of expat workers coming back home for good, hence transferring larger sums of money.”

This ties in with the results of a recent survey by financial comparison site yallacompare, which found a majority of UAE residents continue to regularly send money home despite headwinds from the pandemic but less than the same period last year. The average monthly amount being remitted by UAE expatriate residents this year ranges between Dh1,000 and Dh1,999, the survey found.

The World Bank had projected a 7 per cent decline in remittances this year to $508 billion, which is an improvement on the 19.7 per cent slump it had forecast in April.

After registering sharp drops from March to May when lockdowns were prevalent globally, remittances to Pakistan, Morocco, Sri Lanka, Bangladesh and Kenya rebounded strongly in the following months, growing on average by 27 per cent year on year, according to EFG.

The bank said the strong growth of remittances coincided with a weak job markets globally. However, it warned of a potential drop in inflows in the coming 12 to 18 months. This resonates with findings of the World Bank, which suggest that remittances would fall by a further 7.5 per cent in 2021 to $470bn, as opposed to its previous estimate of a 5.6 per cent rebound.

The investment bank added that with the normalisation of labour markets to pre-Covid-19 levels expected to take years, it continues to expect remittances to suffer as a result. Egypt, Bangladesh and Sri Lanka would be the most negatively impacted by a potential drop in remittances next year. The pain would be even more severe for Jordan and Lebanon, according to EFG.

“The degree of the expected drop remains hard to predict considering the uncertainties around the pandemic’s second wave and normalisation of flows as restrictions are removed," EFG said. "Any large drops in remittances, associated with thousands, if not millions, of workers going back to their home countries, would clearly raise a number of economic and social challenges to recipient countries."