Global remittances could fall as much as 20 per cent this year, their sharpest decline in recent history, due to the Covid-19 crisis, the World Bank said in a new report published on Wednesday.
Worldwide remittances will drop to $572 billion (Dh2.1 trillion) in 2020 from $714bn in 2019, according to the organisation’s latest migration and development brief.
It would be the steepest decline in at least 30 years. By comparison, remittances decreased by only about 5 per cent in 2009 following the global financial crisis.
Remittance flows to low and middle-income countries are forecast to drop 19.7 per cent to $445bn in 2020 from $554bn in 2019.
“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.
As of Wednesday there are more than 2.5 million confirmed Covid-19 cases worldwide with more than 175,000 deaths, according to Johns Hopkins University.
Lockdowns, travel bans and physical distancing measures have brought global economic activities to a near standstill.
The world is facing the worst recession since the Great Depression in the 1930s, according to the International Monetary Fund. The Washington-based lender projects the global economy will contract 3 per cent in 2020 in the baseline scenario, after expanding 2.9 per cent in 2019.
The World Bank’s report estimates foreign direct investment to low and middle-income countries will decline by more than 35 per cent, due to “travel bans, disruption of international trade and wealth effects of declines in the stock prices of multinational companies”. Private portfolio flows through stock and bond markets could fall by over 80 per cent.
These factors combined will increase the relative importance of remittance flows as a source of external financing for low and middle-income countries, the report said.
In 2019, there were approximately 272 million international migrants, including 26 million refugees, according to the World Bank.
Migrant workers also tend to be more “vulnerable to the loss of employment and wages during an economic crisis in their host country” when compared to native-born workers, the report said.
For example, the report shows that during the 2008 global financial crisis, the average unemployment rate for foreign-born workers in the 28 countries of the European Union rose to 16.9 per cent in 2009 from 11.1 per cent in 2007. In comparison, the unemployment rate for native-born workers rose to 11.1 per cent in 2009 from 7.3 per cent in 2007.
Even in 2018, the unemployment rate in the EU was 6.9 per cent for native-born workers and 12.3 per cent for foreign-born workers. The unemployment rate for foreign-born workers is especially high in Italy and Spain, which have been hit hard by the coronavirus, the report said.
Remittances to Europe and Central Asia are expected to decrease the most in 2020, with a projected decline of 27.5 per cent. Sub-Saharan Africa follows with an expected drop of 23.1 per cent and South Asia with a 22.1 per cent decline.
In the Mena region, inward remittances are projected to fall by 19.6 per cent, following a rise of 2.6 per cent in 2019. The biggest recipient of remittances last year was Egypt, with $26.8bn out of $59bn, followed by Lebanon, Morocco and Jordan.
However, remittance flows to the Mena region are expected to recover in 2021, although at a slower pace of 1.6 per cent due to moderate growth in the euro area and weak GCC outflows, the report said.
Overall, the World Bank forecasts remittances to low and middle income countries will grow 5.6 per cent in 2021, with global remittances increasing 5.2 per cent.
The World Bank has also been working with G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.
The global average cost of remittances declined to 6.8 per cent in the first quarter of 2020, from 6.9 per cent a year prior. However, this remains far above the United Nation’s Sustainable Development Goal target of 3 per cent.
The “unbanked” population often lacks access to online remittance services that require banks, payment cards or mobile money.
“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,” Mr Malpass said.