More than a year into the COVID-19 crisis, which was undoubtedly the deepest economic and health crisis in decades, data published today revealed again the resilience and dependability that remittances represent for families during crises.
Defying projections of a severe contraction, officially recorded remittance flows to low- and middle-income countries (LMICs) reached $540 billion in 2020, just 1.6 percent below the 2019 total of $548 billion, according to the latest Migration and Development Brief.
The decline was smaller than the one during the 2009 global financial crisis (4.8 percent). Also, remittances did not decline as much as FDI flows to LMICs, which, excluding flows to China, fell by over 30 percent in 2020. As a result, remittance flows to LMICs (excluding China) surpassed the sum of FDI and overseas development assistance in 2020.
Foremost among the drivers of remittance flows and reasons behind their resilience during the crisis was migrants’ desire to help their families, to send money home by cutting consumption or drawing on savings.
The willingness to help family members was enabled by fiscal measures in almost all host countries that resulted in better-than-expected economic performance. Cash transfer and employment support programs implemented in many large economies cushioned a fall in personal incomes and consumption, and supported businesses and employment of workers, including foreign-born persons. A second enabling factor was that businesses in many host countries were better prepared for remote work and remote provision of services which also supported employment.
There was a greater use of digital remittance channels as hand carrying across international borders was disrupted by travel restrictions and lockdowns. There was a broad shift in flows from informal to formal channels in 2020 in many remittance corridors, although in some corridors flows seemed to shift in the opposite direction.
While the global fall in remittances was small, there were important regional variances. In general, due to weak oil prices, remittances from oil-dependent economies declined more than they did in non-oil economies. For example, in the case of Russia, the twin effects of weak oil prices and the depreciation of the source-country currency caused a nearly 10 percent fall in remittance flows to the Europe and Central Asia region. Weak oil prices affected the employment of migrant workers in the Gulf Cooperation Council countries, leading to declining outbound remittances from the region.
With global growth expected to rebound further in 2021 and 2022, remittance flows to LMICs are expected to increase by 2.6 percent to $553 billion in 2021 and by 2.2 percent to $565 billion in 2022. These projections are subject to significant risks, however. A recurrence of COVID-19 outbreaks cannot be ruled out in the near future. Many countries may not be able to provide the same level of fiscal stimulus as they did in 2020. The shifts from cash to digital and informal to formal channels may also slow down, unless solutions are found for improving access to banking for migrants and for new money transfer operators.
The unexpected resilience of remittance flows during the COVID-19 crisis has highlighted the importance of the timely availability of data. After overtaking the sum of FDI and ODA in LIMCs (excluding China), remittances can no longer be ignored as small change. Countries need to collect better data on remittances, in terms of frequency (either monthly or quarterly), timely reporting, and granularity (by corridor, channel, instrument).
There has been progress in some areas of policy response during the crisis. For example, some host countries have included migrants in cash transfer programs and vaccination programs. Host countries should provide vaccines to migrant workers to enhance the safety of their own populations – a point that seems to be increasingly acknowledged. However, many host countries are financially stretched. In particular, the many developing countries hosting migrants would need concessional financing support from external sources to sustain increased spending associated with migrants. Supporting migrants who may be lower skilled, in irregular status, and in the informal sector will continue to be a challenge.