The complicated picture of remittances and COVID-19: the confluence of time, policy, and state of the economy in sending and receiving countries

The UN International Organization for Migration recently published a report discussing the effects that the COVID-19 pandemic is having on remittances. (Note: remittances are comprised of money sent by migrants to family or relatives in their country of origin and are the subject of chapter 11 of our textbook.)  Although the current reality of remittances across many countries has met prior projections of sizable declines, other countries have not experienced these dire  expectations. Besides just regaining lost remittance inflows, some countries have seen positive growth in remittances during the COVID-19 pandemic!

What was predicted?  

In a nutshell, the World Bank, not surprisingly predicted that remittances would decline in 2020 due to the effects of the pandemic cutting employment opportunities and income of migrant workers. As shown in the figure below, remittances were forecasted to decline to $566 billion in 2020 down from $707 billion in 2019. Thus, World Bank projections anticipated a 19.7% global decrease in remittances.

Global remittance volume set to plunge in 2020 - Business Insider - Business Insider

 Graph: World Bank projections for global remittance volume in response to COVID-19 

What has actually happened?

On the one hand, some nations have experienced decreases in remittances. Honduras, for example, showed a decrease in remittances between January and March by 1.1% from 2019, and a further more remarkable decrease between March and April 2020 of 43% from 2019. El Salvador also experienced a 9.8% decrease in remittances between January and April 2020 compared to 2019.  As 95.4% of its remittances originate from the United States, El Salvador was likely negatively impacted by the United States’ severe lockdown restrictions during those months.

On the other hand, some countries have remarkably shown some significant increases in remittances during this time. Guatemala, for example, demonstrated an increase in remittances during January and February of 2020 from 2019, with February’s increase being the greatest monthly increase since 1995, and a more significant increase of 9.2% in remittances in June 2020 from June 2019. Mexico has also shown a doubling in remittances during the month of March 2020 from February, the same month of the Mexico General Health Council’s declaration of COVID-19 as a national pandemic, and a near record-breaking increase in remittances in July 2020 to $3.53 billion, the third highest level of remittances on record for Mexico.

 

Source: International Monetary Fund, remittance flows

Why has there been such a dichotomous response in remittances to the pandemic?

Possible explanations for these disparities are related to the differential levels and timing of COVID outbreaks in the sending countries and the response to the pandemic in the receiving country. Although declines in remittances can reasonably be attributed to decreases in income for migrant workers in industries (service and high contact sectors such as hospitality and tourism and some manufacturing plants) affected by COVID-19 lockdown protocols, the rebounds in remittances are more difficult to explain. 

With close inspection of the data currently available, some important insights can be identified. Notably, increases in remittances in countries affected by the pandemic appear correlated with the lifting of lockdown restrictions in other countries. 

Canada, for example, had Stage 3 reopenings grouped across its regions at relatively similar times. Ontario began its Stage 3 reopening in mid-July, Quebec enacted its Stages 3 - 5 reopening phases from May 20 to June 1, and British Columbia began its Stage 3 reopening on June 24. Most previously closed service and high contact sectors of industry, excluding certain high-risk exceptions, were given the ability to resume business following social distancing and sanitation precautions as advised by medical experts. This general cluster of reopening times shows some correspondence with some developing countries with migrant workers working in Canada.

Mexico’s increases in remittances, for example, have occurred in the months of June and July, corresponding with the beginning of Phase 3 reopening processes in countries such as the United States and Canada. Guatemala also showed increases in remittances in the months of June and July. The Philippines and Kenya have likewise experienced increases in remittances, 15% and 12%, respectively, from May into June.  In sum, these figures give some insight into the possibility that the easing of lockdown restrictions in countries across the globe has helped to improve migrant workers’ capacity to send money back to their families abroad. 

In addition, worsening economic situations in developing nations due to accelerating growth of COVID cases may result in a greater need for remittances, despite lower employment and income levels. These COVID trackers in the Philippines and Kenya provide evidence that the severity of cases in the receiving countries corresponded to increases in flows to these countries. It is possible that greater need for families back home may be encouraging migrant workers to draw from their savings to send additional money in order to compensate for these new needs, though such a situation could eventually prove unsustainable.

Is there a role for policymakers?

In order to curb intensified economic fallout from the COVID-19 global recession and to keep remittances stable, additional steps could be taken by both host (destination) and home (source) countries to help alleviate the new pressures of the pandemic economic situation on migrant workers and poor households. Host countries could ensure migrants’ access to basic health care, goods and services. In-need households in source countries, previously reliant on remittances, could be compensated by cash transfers and food aid. Sending countries could also aim to lower the cost of sending remittances. Increasing mobile payments and digital transfers while reducing the global average 6.75% cost of remittances could help in giving migrant workers a significant amount of money back that they would have paid in fees.  Collecting and assessing household level data to study the impact of COVID-19 on remittances, savings, and the method of transferring funds could shed additional light on the importance of this source of funds for the receiving countries and is a fertile area for future research.

Works Cited

Guest Contributor, How Are Remittances Being Affected by COVID-19? https://rosanjose.iom.int/SITE/en/blog/how-are-remittances-being-affected-covid-19 IOM UN Migration Blog, October 8 2020.

A Framework for Reopening our Province: Stage 3 https://www.ontario.ca/page/framework-reopening-our-province-stage-3 ontario.ca, July 17 2020.

International Development Association, International Bank for Reconstruction and Development (2020). Remittance Prices Worldwide Report (Issue No. 35) The World Bank. https://remittanceprices.worldbank.org/sites/default/files/rpw_report_september_2020.pdf 

Kenya: the latest coronavirus counts, charts and maps, https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/kenya/ reuters.com COVID-19 Tracker, last updated 7:59 PDT, October 27 2020.

Phase 3 - BC’s Restart Plan https://www2.gov.bc.ca/gov/content/safety/emergency-preparedness-response-recovery/covid-19-provincial-support/phase-3 gov.bc.ca, last updated October 26 2020.

Philippines: the latest coronavirus counts, charts and maps, https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/philippines/ reuters.com COVID-19 Tracker, last updated 9:23 PDT, October 27 2020.

Indeje, David, Kenya’s Diaspora Remittances Rise 12% to Ksh 31.1B in June, https://khusoko.com/2020/07/25/kenyas-diaspora-remittances-rise-12-to-ksh-31-1b-in-june/ khusoko.com, July 24, 2020.

Keyes, Daniel, (Author). (2020). Forecast: Global Remittance Volume (Graph), Retrieved October 27 2020, from: https://www.businessinsider.com/global-remittance-volume-set-to-plunge-in-2020-2020-4 

Limpot, Kristel, BSP: Remittances recover in June after three-month drop, https://www.cnnphilippines.com/business/2020/8/17/overseas-filipinos-remittances-june-2020.html CNN Philippines, August 17, 2020.

Nathans, Lara, et al., Reopening Canada: A Guide for Non-Essential Retailers, https://www.mccarthy.ca/en/insights/blogs/consumer-markets-perspectives/reopening-canada-guide-non-essential-retailers-covid19#Qu%C3%A9bec McCarthy Tetrault LLP, July 30, 2020.

Ong, Rebecca, World Bank Predicts Sharpest Decline of Remittances in Recent History https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-predicts-sharpest-decline-of-remittances-in-recent-history World Bank, April 22 2020.

Quayyum, Saad Noor & Kpodar, Roland Kangni, Supporting Migrants and Remittances as COVID-19 Rages On https://blogs.imf.org/2020/09/11/supporting-migrants-and-remittances-as-covid-19-rages-on/ IMFBlog, September 11 2020.

Authored by Jeffrey Justin Ashbeck (UCSB '18 (philosophy), JD (anticipated) '24) and Cynthia Bansak (Professor of Economics, St. Lawrence University, IZA Fellow) 

Email contacts: jeff.jash@gmail.com and cbansak@stlawu.edu 

(https://www.clippings.me/users/jeffreyjustinashbeck)

(https://www.stlawu.edu/people/cynthia-bansak)

 

October 27, 2020