Remittance decline due to COVID-19 seen much worse than in 2007-09 financial crisis

THE decline in remittances to developing countries will be much worse than the 5% drop recorded in the wake of the 2007-2009 global financial crisis, the Institute of International Finance (IIF) said.

In its Macro Notes report issued Wednesday, IIF, a trade group representing financial institutions, said remittances could drop by 20-30% this year due to the economic shocks caused by the coronavirus disease 2019 (COVID-19) pandemic.

IIF, based in Washington, DC, said the current crisis is affecting more countries than in 2007-2009.

“During the global financial crisis (GFC), remittances fell by about 5%. As the COVID-19 recession affects even more countries simultaneously, especially host countries in the EM (emerging markets) universe, a drop of 20-30% seems possible,” IFF said Wednesday.

The IIF said pressure on remittances “will be particularly challenging for countries with high external funding pressure where remittances help reduce otherwise large current account deficits, including most of Central America, Caribbean nations, as well the Philippines and Egypt.”

It said remittances are usually countercyclical but many institutions are projecting a sharp decline in 2020 due to the economic shock from the pandemic.

“Remittances depend on migration, host- and home-country growth, exchange rate fluctuations, and the ability to transfer money across borders,” it said.

In host countries, lockdowns and business closures have “disproportionately” affected sectors where migrants are usually employed including services jobs in food and hospitality, retail and wholesale, tourism and transportation.

It said many migrants also work in sectors that were allowed to operate during the lockdown but were highly exposed to coronavirus such as in agriculture, food processing and health care.

“Furthermore, migrants’ ability to shift across sectors or gain access to government support is likely curtailed. Finally, while electronic cross-border flows can continue unabated (during) COVID-19 lockdowns, carrying cash is still the preferred method of remittance transfers in many cases,” it said.

According to IIF’s data, the US, the European Union and Gulf countries are some of “economies that account for the bulk of global remittances flows, (which) are among the most exposed to the COVID-19 and oil price shocks.”

It said these economies are among the important sources of remittances for home countries in Africa and Asia.

“Among key recipient countries, important emerging markets such as India, China, Mexico, the Philippines, Egypt, and Nigeria account for close to 40% of all remittances in dollar terms,” it said.

The Bangko Sentral ng Pilipinas in April projected that cash remittances from overseas Filipino workers (OFWs) could decline by 0.2-0.8 percentage points this year, after the original projection of 2% growth outlook issued earlier that month.

The labor department reported that over 300,000 OFWs have been displaced by the pandemic, with tens of thousands returning to the Philippines. Over 200,000, mostly in the US and Europe, have chosen not to return. — Beatrice M. Laforga