The Covid-19 pandemic has proven to be more deleterious than any other crisis in the past century. As a consequence, most countries have had to block foreigners and returning residents temporarily. Many businesses, including small and medium-sized enterprises (SMEs) and informal operations, have closed worldwide. While countries started reopening in May, the probability of the second wave of infections remains, making the future of global communities uncertain.
Viewed through a migration lens, the economic crisis induced by Covid-19 could be even longer, deeper, and more pervasive than economic and political experts had initially predicted. Migrants, refugees and their families have not been spared from the strenuous consequences of rising infection rates, lockdowns, and economic downturns. Since the early months of 2020, the crisis has presented a challenge for the cross-sectoral mobility of migrant workers in particular, which could be especially hard for lower-skilled, informal and undocumented (migrant) workers.
While migration flows are likely to fall, the stock of international migrants may not decrease immediately, since remittances are not as volatile and dependent on major financial crashes as other indicators, such as capital flows. However, owing to uncertainty, prominent institutions have made diametrically opposite predictions about the future trajectory of remittances. The World Bank predicts a 20 percent drop by late 2020, leading to a series of negative socio-economic repercussions.
Many debates on the magnitude of the Covid-19 pandemic on global remittance flows have proven to be inconclusive. The ongoing crisis threatens to turn delays in remittance flows into a chronic characteristic of global socio-financial exchanges. Hence, the socio-political aspects of changes in remittance flows in the first half of 2020 are key to assessing the depth of the post-pandemic global crisis.
Many experts state that to propel rapid recovery, the global community should further the flow of remittances with minimal disruptions. To that extent, this insight tackles the situational overview, socio-strategic implications of changes in global remittance flows, and what the post-pandemic future holds for this traditionally understudied channel of poverty alleviation and catalyzed development.
Remittances and the pre-pandemic crises
Although migrants, refugees, and other trans-national workers have been sending remittances – defined as ‘support and transfers in the form of investment, money, and goods to their countries and regions of origin’ – for more than a century, international organizations hardly tackled the phenomenon until the early 2000s.
The importance of remittances goes beyond the economic development of global markets. According to the UN Sustainable Development Goals (SDG), remittances represent up to 60 percent of recipients’ families on average and typically more than double a family’s disposable income, especially in the Global South, thus allowing them to minimize uncertainty (SDG 1). Furthermore, remittances invested in healthcare – access to medicine, preventive care, and health insurance products – have shown to improve the overall well-being of recipient families (SDG 3).
Migration has increasingly become a consequence of climate change in recent years. As a result, remittances and diaspora investment play a crucial role in mitigating the negative impacts of climate change on people’s livelihoods, especially in the Global South, thus helping entire cross-border communities cope with income shortages due to weather-related shocks (SDG 13).
On a broader level, remittance inflows in many developing, and underdeveloped countries make a significant percentage of their GDP per capita and surpass the total value of major national exports. The added remittance income can help fledgling governments attract additional investment and fortify their local economies. Migrant wages may also serve as sources of scarce foreign exchange for these governments. These economic implications catalyze and are influenced by social changes in cross-border communities. The most prominent example is the creation of a vibrant diaspora in remittance-sending countries, which allows the self-sustainability of remittance flows across regions.
On the one hand, since remittances are credited with poverty alleviation, they raise the migrants’ profiles who are otherwise seen as marginal additions to developed country populations and often resented in their home countries and regions of origin.
Even before the Covid-19 pandemic, a significant number of transnational breadwinners, including migrants and refugees, were already part of marginalized and vulnerable groups experiencing socio-economic hardships in their origins and their host communities.
Research on migrant and refugee populations in the developed countries, especially those that create vibrant and sustained diasporas, has shown how workforce movements embody and underscore globalization. The vast literature on global remittances presents a mostly positive phenomenon in which migrants’ earnings have helped families and communities alleviate poverty. Remittance income, they posit, is better at reaching social sectors that international assistance often misses.
The extent to which remittances promote socio-economic development has been at the heart of policy debates worldwide. However, one prominent characteristic that has emerged amid the 2008 financial crisis and several recent natural disasters is that remittances can play a decisive role in post-crisis recovery, both in socio-political and economic terms.
While there has been severely limited data on remittances’ role during acute times, recent reports show that they have been counter-cyclical in disaster recovery. For example, remittances formed a central part of many people’s livelihoods prior to the 2005 earthquake in Pakistan. Many remittance senders returned to their families after the earthquake, often giving up their jobs and disrupting a vital income source. Communications systems were damaged, and ID documents lost, causing disruption in people’s lives and the means of livelihood.
However, remittance recipients appear to have been more resilient because they were better off and recovered quickly from the disaster compared to those who had no prior assistance from abroad. More importantly, even in the absence of scaled-up nation-wide support, individual-level remittances can make a difference in sustained recovery.
The post-tsunami situation in Sri Lanka is another case in point. Both formal and informal remittance channels were severely affected in the 2004 tsunami in the country. Remittances from over 1.2 million migrants provided the largest foreign exchange source in the country (USD 1.5 billion in 2004). Bank closures, damage to infrastructure, and the loss of documents disrupted remittances, particularly in the first two months following the tsunami. However, recovering speedily and increasing sharply in the aftermath of the tsunami, remittances played a vital role in the country’s recovery, according to the Sri Lankan Central Bank. Where remittances could be accessed, they met the needs not addressed by international organizations or the government. In other words, remittance flows filled a critical gap before government cash assistance arrived.
World Bank documents iterate that remittances significantly impact private consumption during and following conflicts and disasters. Remittances have low volatility and appear to be counter-cyclical, meaning that, during shocks, economic downturns or disasters, they can provide a stable income and might even increase in response to such emergencies (World Bank, 2006). Remittance flows are particularly significant for those among the world’s poorest countries prone to crises and disasters. Having a diverse income, including remittances, may decrease socio-economic risks for entire households. Hence, remittances serve a vital purpose in reducing people’s vulnerability to crises and help ensure a robust and faster socio-economic recovery.
There is paucity in the literature on remittance stability during crises. However, some studies suggest that remittances can ensure that basic consumption needs are reliably met while other sources of income decline due to a shock, and serve as an insurance mechanism during crises (World Bank, 2006). While the stability of remittances arises from the fact that the senders are unlikely to be affected by the same shocks as the recipients, continued flows of funds might help mitigate the worst impacts of the pandemic. Given their ability to create and recreate entire trans-national ecosystems, in social and economic terms, remittances have the potential to be a sine qua non for the post-pandemic recovery.
Remittances and the Covid-19 pandemic
The outlook for remittances for 2020 remains as uncertain as the impact of the Covid-19 pandemic on the global growth. According to the International Organization for Migration (IOM), global growth will largely depend on the national-level measures taken to restrain the spread of the virus. The International Monetary Fund (IMF) predicts that the world economy will contract by 3 percent in 2020 in the baseline scenario, a decline of approximately 6 percent compared with 2019. Advanced economies are projected to decline by 6.1 percent while emerging markets and developing economies are expected to drop by 1.0-2.2 percent by the end of the year.
Feeding into uncertainty is the impact of the Covid-19 pandemic on micro-businesses and SMEs, where migrant and diaspora entrepreneurship has been primarily concentrated. The International Labor Organization (ILO) estimates that around 81 percent of employers and 66 percent of own-account workers are in countries with recommended or required workplace closures. They are experiencing a severe impact on current operations and solvency and slow down cross-border trade of goods and services.
The pandemic has affected all countries, and the economic fallout is likely to vary worldwide, given country-specific characteristics. In the past, however, remittances have shown their counter-cyclical nature during acute times in recipient economies. They have demonstrated great potential to alleviate socio-economic challenges in the global post-pandemic recovery, especially in the Global South.
The socio-economic impact of severely disrupted remittance flows, on the senders and the recipients, has encompassed entire remittance-receiving regions of the world, including East Asia and the Pacific. In these regions, returning remittance workers have faced uncertain access to protection, compensation, and healthcare. In response to the Covid-19 pandemic, several host-countries have temporarily introduced new policies or relaxed requirements to facilitate migrant workers’ access to medical care.
For instance, more than 1,600 overseas Filipino workers had tested positive for Covid-19, of which 451 had recovered, and 201 had died as of late April 2020. For every 10 people in the Philippines, one is a migrant working abroad, accounting for almost 10 percent of the country’s GDP. Hence, the impact of such losses are set to become increasingly grave by the last quarter of 2020.
Throughout the East Asia and Pacific region, a significant portion of migrant workers was left without financial support from their host countries to counter the economic fallout from containing the pandemic. Around 60,000 migrant workers from Myanmar, Cambodia, and Laos had to return from Thailand, defying requests by officials to remain in the country to help contain the virus and raising fears of cross-border infections.
Singapore, which appeared to have early success in containing the virus, saw a new surge in positive cases from a previously overlooked source. Over three-quarters of the cases, almost 80 percent were related to low-skilled migrant workers, primarily from East Asia. This vulnerable group faced numerous challenges accessing healthcare services. As a response, the Singaporean government has ramped up migrant-support efforts since the onset of the ”second wave”.
The situation also appears bleak in some of the largest remittance-sending regions, such as the Middle East and North Africa (MENA). However, the anticipated decline in remittances from the region can be attributed both to the global slowdown due to Covid-19 and severe oil price volatility best illustrated by the steep reductions in” black April”. Hence, all major remittance-receiving countries will likely see a collapse of remittances in the short-run. Remittances, however, are expected to recover in 2021, albeit at a slow pace of 1.6 percent due to moderate growth in the euro area and weak Gulf outflows.
As the early phases of the Covid-19 pandemic unfolded, many remittance senders, especially those from the Gulf countries, returned to their home countries in South-East Asia. Travel restrictions also halted these flows. Some migrants, such as more than 150,000 Afghan returnees from Iran, had to be evacuated.
Several host-countries have temporarily introduced new policies or relaxed requirements to facilitate migrant workers’ access to healthcare in response to the Covid-19 pandemic. For instance, the Portuguese government announced that all immigrants with pending residence applications would be treated as permanent residents until July 1, 2020. While this laudable measure has allowed migrants access to the public social security system, including healthcare, the uncertain prospects of a more permanent remedy have put remittance-senders in a precarious situation.
Furthermore, the Malaysian Ministry of Health announced that foreigners would be exempted from registration, examination, treatment, and hospitalization fees related to the treatment of Covid-19. The British government announced that no charges would be made for the diagnosis or treatment of Covid-19 for all people, regardless of their residency status (IOM, 2020).
The Indian government has also set up camps with basic provisions to shelter stranded migrants in cities and districts of destination, transit, and origin. Some countries provide cash support to affected and vulnerable groups, with a specific allocation for internal migrants and returned migrant workers (World Food Program, 2020).
Positive measures to support migrant workers have also been evident in the Arabian Gulf region. For instance, the UAE announced that visas and entry permits expired after March 1 would remain valid until 2021. The country also introduced a home testing program for people with determination and free tests for essential and domestic workers among vulnerable categories of citizens and residents. Saudi Arabia also announced the renewal of expired residency permits for all expatriate employees free of charge.
Globally, the socio-economic uncertainty of global remittance flows may be reduced and somewhat mitigated if enough support is given to remittance-senders in their host-countries, ranging from access to healthcare services to support their employees and businesses. Such assistance is bound to have a ripple effect in alleviating the pandemic-induced crisis in their home countries, thereby fostering faster transnational recovery.
Post-pandemic recovery and prospects
Limited data and the uncertain outlook for remittance flows in the post-pandemic period leave gaps in assessing their contribution to the global socio-political and economic recovery. The disruption of formal remittance services and a lack of online banking may shift remittances to informal channels in the post-pandemic period. To mitigate negative trends for this lifeline channel and fully utilize their role in the long-run global recovery, the transition of remittances to electronic sources and easier transfer pathways ought to be catalyzed in the short-run.
The UK and Switzerland have spearheaded some positive movements in this regard, urging governments to support greater access to digital remittance services and to declare remittances an essential financial assistance, given that they account for more than 5 percent of GDP per capita in at least 60 developing countries. Money sent to family and friends living in low and middle-income countries totaled USD 554 billion in 2019, posing a potential lifeline in many developing countries in the post-pandemic period.
However, these efforts do not constitute a globally unified approach. Globally, remittance transfers still cost an average of 6.67 percent of the amount sent, wherein banks remain the most expensive and mobile services the least costly channel of transferring remittances. Despite a slight decline from 6.79 percent in the first quarter of 2020, the current cost is nowhere near the UN-lauded goal of zero charges. Since remittances can alleviate the repercussions of the Covid-19 pandemic, the global community needs to work more closely on catalyzing these processes in the immediate future.
The latest research shows that migrants transfer funds and invest in their home-country even at times of acute crises when the international investment is virtually dematerialized. This behavioral pattern indicates that even individual-level remittances can rehabilitate entire socio-economic ecosystems. On a household-level in remittance-receiving countries, mostly in the Global South, having a diversity of income significantly decreases risks, thereby indicating the linkage between disrupted remittance flows and deepening recessions.
Amid the pandemic, lockdowns, shorter business hours, and social distancing have affected remittance service providers. This has, in turn, increased the relative importance of electronic transfers, since some cash-based services and remittance operators have been closed or are negatively impacted by the crisis. Given the tentative, and sometimes contradictory, range of crisis-management policies implemented around the world, post-pandemic remittance flows might provide a lifeline to cushion serious socio-economic consequences for the world’s most vulnerable communities.
The overall migration flows are likely to fall by 2021, but the stock of international migrants may not decrease immediately. In 2019, there were around 272 million international migrants, including 26 million refugees. Because of the logistical difficulties of returning, the rate of voluntary return is likely to fall, except in the case of a few cross-border migration corridors in the South, such as Venezuela-Colombia, Nepal-India, Zimbabwe-South Africa, and Myanmar-Thailand. As a result, more people will stay in their host-country than is typical (IOM, 2020).
To foster the continuation of remittance flows, governments should consider short, medium, and long-term interventions to support:
- Stranded migrants;
- Remittance infrastructure;
- Loss of subsistence income for families back home; and
- Access to health, housing, education, and jobs for migrant workers and their families in host countries.
In the worst-case scenario of a vast number of migrants losing their jobs, especially those at lower-skilled positions and severely affected industries, not only will remittances be impacted, but we may also see some reversal patterns. Their families might be scrambling for additional funds to fly them back home and further endanger their local livelihoods. One prominent example from the MENA region is the late-June case of dozens of Ethiopian domestic workers. They were left in front of the Ethiopian embassy in Beirut, Lebanon after their employers could no longer pay for their services. With a lack of official support and alternatives, family members funded their repatriation flights to meet health and safety measures upon return. In the wake of similar stories from East Asia, a trend of discarding migrant workers might cause unprecedented disruptions in the flow of global remittances in the short-run.
A range of emergency policies – ranging from granting temporary protected status to foreign nationals with expired visas, identifying options to serve stranded migrants, and setting up grants to improve access to basic health services, education, and housing for both the host and the migrant communities in remittance-sending countries – might improve the chances of remittances becoming a potential lifeline of recovery for many communities in the post-pandemic period includes.
The Covid-19 pandemic has demonstrated the global shortage of health professionals and an urgent need for cross-border cooperation and long-term investments in medical training. Hence, in the medium-term, recognition of migrants’ and refugees’ skills in host countries to help address skills shortages could help catalyze economic recovery in the remittance-sending and the receiving countries. Remittances have proven their resilience at times of crises and can, therefore, help support communities in combination with government efforts, aid and stimulus packages, and NGO-driven recovery projects.
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