Migrants send billions to relatives in poor nations each year. Here's what you need to know

by Thin Lei Win | @thinink | Thomson Reuters Foundation
Wednesday, 22 April 2020 18:45 GMT

A worker counts money at a recycling yard as he poses for a picture in Beijing, China, September 21, 2016. REUTERS/Thomas Peter

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Remittances - money sent home from relatives working overseas - play a crucial role in reducing global poverty and hunger

By Thin Lei Win

ROME, April 22 (Thomson Reuters Foundation) – Millions of poor families who rely on money sent home from relatives working overseas will lose a "crucial financial lifeline" this year with the World Bank warning on Wednesday that global remittances could fall by nearly 20% in 2020. 

For low- and middle-income nations, which account for the bulk of transfers, remittances are projected to fall four times more than during the 2009 financial crisis, to $445 billion in 2020 from a record $554 billion in 2019. 

The drop - the largest in recent history - is largely due to job losses and wage cuts during the coronavirus pandemic for migrant workers, who tend to be more vulnerable during economic crises in their host countries, the World Bank said. 

Why is this a concern and how would it affect vulnerable communities across the world?

How many people rely on remittances?

Each year more than 200 million migrant workers around the world send money home to an estimated 800 million people, mostly in developing countries, according to the United Nations' International Fund for Agricultural Development (IFAD).

This means at least one billion people - or one in seven - are involved in the process. Economists and development experts say they play a crucial role in reducing poverty and hunger.     

Migrants usually send around $200-$300 per transaction, which represents, on average, 60% of total household income, said the U.N. agency, which manages a multi-donor financing facility aimed at maximising the impact of remittances.

Of this, 75% goes towards meeting immediate needs, it added. 

The World Bank said there were around 272 million international migrants in 2019.

Why are they important to low-income countries?

Remittances account for a significant chunk of GDP in these countries. They make up more than 9% of GDP in fragile and conflict-affected situations, nearly 9% in poor countries and 7.7% in small island developing states.

"Migrant remittances provide an economic lifeline to poor households in many countries; a reduction in remittance flows could increase poverty and reduce households' access to much-needed health services," the World Bank said.

Remittances also dwarf many other sources of external financing.

Money sent to low- and middle-income countries in 2019  surpassed foreign direct investment (FDI) for the first time, said the World Bank.

The money sent home in 2017 was more than three times official development assistance that rich nations provide to poorer nations to improve their welfare, said IFAD.

How do remittances help poor households?   

Studies have shown that remittances not only reduce poverty but also child labour, improve nutrition and are associated with higher spending on education, the World Bank said.

Remittances are becoming even more crucial for poor nations because FDI could slump by more than 35%, due to travel bans, disruption of international trade and declines in the stock prices of multinational companies, it added.

The 10 countries where remittances account for more than a fifth of GDP are TongaHaitiSouth SudanKyrgyzstanTajikistanNepalMontenegroHondurasLesotho and El Salvador.

Which regions and countries would be hardest hit by the fall in remittances?

The World Bank said the decline would be sharpest in Europe and Central Asia (27.5%), sub-Saharan Africa (23%) and South Asia (22%).

The drop in Europe and Central Asia is due to the combined effect of the coronavirus pandemic and lower oil prices. Particularly vulnerable are smaller remittance-dependent countries such as Kyrgyzstan and Tajikistan.

The drop in sub-Saharan Africa, where nearly one in four people do not have enough to eat, is because a large share of migrants from this region are in the United states, Europe, Middle East and China, which are badly hit by the coronavirus. 

Similarly, the economic slowdown in the United States, Britain and EU nations are expected to hurt flows to South Asia.

India and Pakistan would see the biggest declines in percentage terms but Nepal, where remittances account for 27% of GDP, could be hardest hit.

Can anything be done?

The World Bank said governments should consider migrants and remittances in policy responses to the pandemic and said host countries should extend social safety nets to migrants.

(Reporting By Thin Lei Win @thinink, Editing by Belinda Goldsmith. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)