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COVID-19: Remittance Flows to Shrink 14% by 2021

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As the COVID-19 pandemic and economic crisis continues to spread, the amount of money migrant workers send home is projected to decline 14 percent by 2021 compared to the pre COVID-19 levels in 2019, according to the latest estimates published in the World Bank’s Migration and Development Brief.  

Remittance flows to low and middle-income countries (LMICs) are projected to fall by 7 percent, to $508 billion in 2020, followed by a further decline of 7.5 percent, to $470 billion in 2021. The foremost factors driving the decline in remittances include weak economic growth and employment levels in migrant-hosting countries, weak oil prices; and depreciation of the currencies of remittance-source countries against the US dollar.

The impact of COVID-19 is pervasive when viewed through a migration lens as it affects migrants and their families who rely on remittances,” said Mamta Murthi, Vice President for Human Development and Chair of the Migration Steering Group of the World Bank. “The World Bank will continue working with partners and countries to keep the remittance lifeline flowing, and to help sustain human capital development.”

The declines in 2020 and 2021 will affect all regions, with the steepest drop expected in Europe and Central Asia (by 16 percent and 8 percent, respectively), followed by East Asia and the Pacific (11 percent and 4 percent), the Middle East and North Africa (8 percent and 8 percent), Sub-Saharan Africa (9 percent and 6 percent), South Asia (4 percent and 11 percent), and Latin America and the Caribbean (0.2 percent and 8 percent).

The importance of remittances as a source of external financing for LMICs is expected to amplify in 2020, even with the expected decline. Remittance flows to LMICs touched a record high of $548 billion in 2019, larger than foreign direct investment flows ($534 billion) and overseas development assistance (about $166 billion). The gap between remittance flows and FDI is expected to widen further as FDI is expected to decline more sharply.

Migrants are suffering greater health risks and unemployment during this crisis,” said Dilip Ratha, lead author of the Brief and head of KNOMAD. “The underlying fundamentals driving remittances are weak and this is not the time to take our eyes off the downside risks to the remittance lifelines.”

This year, for the first time in recent history, the stock of international migrants is likely to decline as new migration has slowed and return migration has increased. Return migration has been reported in all parts of the world following the lifting of national lockdowns which left many migrant workers stranded in host countries. Rising unemployment in the face of tighter visa restrictions on migrants and refugees is likely to result in a further increase in return migration.

“Beyond humanitarian considerations, there is a strong case to support migrants who work with host communities on the frontline in hospitals, labs, farms, and factories,” said Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank. “Supportive policy responses by host countries should include migrants, while origin or transit countries should consider measures to support migrants returning home.

Origin countries must find ways of supporting returning migrants in resettling, finding jobs or opening businesses. The surge in return migration is likely to prove burdensome for the communities (to which migrants return) as they must provide quarantine facilities in the immediate term and support housing, jobs, and reintegration efforts in the medium term.

According to the World Bank’s Remittance Prices Worldwide Database, the global average cost of sending $200 was 6.8 percent in the third quarter of 2020, largely unchanged since the first quarter of 2019. This is more than double the Sustainable Development Goal target of 3 percent by 2030. The cost was the lowest in South Asia (5 percent) and highest in Sub-Saharan Africa (8.5 percent). Banks are the costliest channel for sending remittances, averaging 10.9 percent, followed by post offices at 8.6 percent, money transfer operators at 5.8 percent, and mobile operators at 2.8 percent.

Despite being the cheapest, money transfer and mobile operators face increasing hurdles as banks close their accounts to reduce risk of non-compliance with anti-money laundering (AML) and combating terrorism financing (CFT) standards. To keep these channels open, especially for lower-income migrants, AML/CFT rules could be temporarily simplified for small remittances. Further, strengthening mobile money regulations and identity systems will improve transparency of transactions. Facilitating digital remittances would require improving access to bank accounts for mobile remittance service providers as well as senders and recipients of remittances.

The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. The WBG is making available up to $160 billion over a 15-month period ending June 2021 to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans and $12 billion for developing countries to finance the purchase and distribution of COVID-19 vaccines.

Regional Remittance Trends

Remittance flows to the East Asia and Pacific region are projected to fall by 11 percent in 2020 to $131 billion due to the adverse impact of COVID-19. China and the Philippines are the region’s top recipients, while as a share of GDP, the top recipients are Tonga and Samoa. Remittance costs: The average cost of sending $200 to the region increased slightly to 7.1 percent in the third quarter of 2020. The five lowest-cost corridors in the region averaged 2.5 percent, while the five highest-cost corridors, excluding South Africa to China, which is an outlier, averaged 13.3 percent.

Remittances to countries in Europe and Central Asia are estimated to fall by 16 percent to $48 billion as the pandemic and fall in oil prices are likely to have wide-ranging impacts on economies, with nearly all countries in the region posting double-digit declines of remittances in 2020. The depreciation of the Russian ruble is also likely to weaken outward remittances from Russia. Remittance costs: The average cost of sending $200 to the region fell slightly to 6.5 percent in the third quarter of 2020 from 6.6 percent a year ago.

Remittance flows into Latin America and the Caribbean are expected to be about $96 billion in 2020, a decline of 0.2 percent over the previous year. Remittances to Colombia, El Salvador, and the Dominican Republic registered positive year-on-year growth between the months of June and September after falling sharply in April and May. Flows to the region’s top recipient, Mexico, held up in part because migrants were employed in essential services in the United States and eligible migrants also benefitted from U.S. stimulus programs. Remittance costs:The average cost of sending $200 to the region rose slightly to 5.8 percent in the third quarter. In many smaller remittance corridors, costs continue to be high. For example, the cost of sending money to Haiti and the Dominican Republic exceeds 8 percent.

Remittances to the Middle East and North Africa region are projected to fall by 8 percent in 2020 to $55 billion due to the projected persistence of the global slowdown. Remittances inflows to Egypt, the region’s largest recipient, have so far been countercyclical to the crisis, as Egyptian workers abroad increase one-off transfers to their families back home. Flows are likely to eventually decline due to lower oil prices and slower economic growth in the Gulf countries, with major remittance-receiving countries likely to register falls in remittances. Remittance costs: The cost of sending $200 to the region rose in the third quarter of 2020 to 7.5 percent, compared with 6.8 percent a year ago. Costs vary greatly across corridors: the cost of sending money from high-income OECD countries to Lebanon continues to be in the double digits.

Remittances to South Asia are projected to decline by around 4 percent in 2020 to $135 billion. In Pakistan and Bangladesh, the impact of the global economic slowdown has been somewhat countered by the diversion of remittances from informal to formal channels due to the difficulty of carrying money by hand under travel restrictions. Pakistan also introduced a tax incentive whereby withholding tax was exempted from July 1, 2020, on cash withdrawals or on the issuance of banking instruments/transfers from a domestic bank account. Bangladesh registered a large increase in remittance inflows in July after the floods that inundated a quarter of its landmass. Remittance costs: At just under 5 percent in the third quarter of 2020, South Asia was the least costly region to send $200 to. But costs are well over 10 percent in some corridors (from Japan, South Africa and Thailand, and from Pakistan to Afghanistan).

Remittances to Sub-Saharan Africa are expected to decline by around 9 percent in 2020 to $44 billion. Within the region, remittances to Kenya have so far stayed positive, though flows are likely to eventually decline in 2021. All major remittance-receiving countries will likely see a decline of remittances. As the COVID-19 pandemic affects both destination and origin countries of Sub-Saharan migrants, the fall in remittances is expected to further lead to an increase in food insecurity and poverty. Remittance costs: Sending $200 remittances to the region cost on average 8.5 percent in the third quarter of 2020, representing a modest decrease compared with 9 percent a year ago. Sub-Saharan Africa is the costliest region to send remittances to. The promotion of digital technology, combined with a regulatory environment promoting competition in the remittances market and review of AML/CFT regulations, are essential to lowering remittances fees for the region.

Detailed regional and global analysis is available in the Migration and Development Brief 33 available on www.knomad.org and blogs.worldbank.org/peoplemove. Brief 33 highlights developments related to migration-related Sustainable Development Goal indicators for which the World Bank is a custodian: increasing the volume of remittances as a percentage of gross domestic product (17.3.2), reducing remittance costs (10.c.1), and reducing recruitment costs for migrant workers (10.7.1).

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Innovative finance mechanism to support Uruguay’s energy transition

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A joint UN proposal in Uruguay, with the United Nations Industrial Development Organization (UNIDO) acting as lead agency, seconded by UNDP and UN Women, has been approved by the United Nations Joint Sustainable Development Goal (SDG) Fund. This was announced today as part of a Joint SDG Fund US$41m portfolio to catalyze strategic financing to accelerate the Sustainable Development Goals.

Uruguay is one of four countries, and the only one in Latin America, to be selected for funding. The UNIDO-led proposal for Uruguay, along with ones from Fiji, Indonesia and Malawi, was selected from 155 proposals from over 100 country applicants across the globe.

The programme will establish a Renewable Energy Innovation Fund (REIF) to support Uruguay´s second energy transition, with the objectives of decarbonizing the economy and boosting competitiveness. The REIF will combat climate change by helping transition Uruguay’s transportation and industry sectors to green energy and by providing affordable access to innovative clean technologies.

The Joint SDG Fund will provide a grant of US$10m, leveraging around US$70m of co-financing from regional development banks and private commercial banks. The REIF will support cleantech financing in energy storage, smart grid, green hydrogen, electro-mobility and waste management/treatment technologies. 

Manuel Albaladejo, UNIDO Representative and the UN team leader designing the Uruguay proposal, stated, “This programme sets a precedent on how UNIDO should approach development cooperation in middle-income countries. Besides UNIDO´s well-known technical expertise, understanding and deploying innovative financing mechanisms to leverage co-funding from development finance institutions and even commercial banks will be key to UNIDO´s work. Indeed, the UN reform and the multilateral funds such as GEF and GCF emphasize the need to shift to impact investments that tap into private sector financing.”

Mireia Villar Forner, United Nations Resident Coordinator in Uruguay, said, “Thanks to the support of the Joint SDG Fund, the UN team is better equipped to support the alignment of private investments to the SDGs through the establishment of a national ecosystem for impact investment. Without a doubt, it changes the way we work.”

Omar Paganini, Uruguay’s Minister of Industry, Energy and Mining, said, “On behalf of the Ministry, we are very enthusiastic about the support received from the SDG Fund, which will be a great contribution to promote Uruguay´s second energy transition. The REIF is an innovative instrument that powers and deepens the impact of our public policies. We believe it will boost Uruguay´s efforts to achieve the SDGs.”

The Joint Sustainable Development Goals (SDG) Fund is an innovative instrument to incentivize transformative policy shifts and stimulate the strategic investments required to get the world back on track to meet the SDGs. The UN Secretary-General sees the Joint SDG Fund as a key part of the reform of the UN’s development work by providing the “muscle” for a new generation of Resident Coordinators (RCs) and UN Country Teams (UNCTs) to really accelerate SDG implementation.

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Estonia provides good support to jobseekers, but does not reach everybody

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The Estonian labour market has outperformed most EU countries after the global financial crisis. The employment rate of people in working age stood at 73% in the third quarter of 2020, up from 61.3% in 2010 and above the OECD average of 66.7%. Estonia provides comprehensive and targeted support to jobseekers, workers and employers. The Public Employment Service provides effective policies addressing the individual needs of the clients and cooperates pro-actively with a wide range of stakeholders. However, many people still lack stable jobs and incomes and are not in touch with the Public Employment Service to get the support they need, according to a new OECD report.

Connecting people with jobs: Improving the provision of active labour market policies in Estonia says that despite good labour market outcomes, about one quarter (26%) of the working age population could achieve better labour market outcomes through targeted support. Many of them face challenges related to their skills (68%) and family-related challenges (64%), such as care obligations. In many cases, they face several obstacles simultaneously and require an integrated approach.

Estonia’s active labour market policies (ALMPs) are responsive to labour market needs. However, ALMPs reach only 39% of people who are weakly attached to the labour market, and only 33% of people who are out of employment for more than one year.

“Reinforcing outreach to vulnerable groups far from the labour market is crucial to ensure that more people in Estonia get the support they need,” said Stefano Scarpetta, OECD Director for Employment, Labour and Social Affairs.

Improved cooperation between the Public Employment Service and other relevant institutions providing social, health and education services would help reduce gaps in support to vulnerable groups. Notably, municipalities should be the “first respondents”, supporting vulnerable groups with social welfare services, and cooperating with other institutions when needed. 

Further improvements in the provision of ALMPs could be supported by a leaner regulatory framework. The current legal regulations support flexible and effective policy responses but are complex, which leads to administrative inefficiencies. A leaner regulatory framework would enable Estonia to support flexibility in policy design while maintaining the capacity to respond to labour market changes.

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UNIDO works to scale up the ICT start-up ecosystem in Iran

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photo: UNIDO

Together with its national counterparts from the Information Technology Organization of Iran’s Ministry of Information and Communication Technologies and in partnership with the Erasmus Centre for Entrepreneurship, the United Nations Industrial Development Organization (UNIDO) is taking the next step to implement the project, “Promoting and upscaling innovative SMEs in the Islamic Republic of Iran”.

The project aims to nurture the entrepreneurial ecosystem for ICT start-ups and scale-ups through international exposure and fostering technology and know-how exchange. In this context, a comprehensive dialogue between governmental institutions and leaders in the private sector has been launched, thereby providing a mechanism for Iranian startups to connect with institutional actors and successfully start scaling up.

An ICT ecosystem mapping exercise has revealed that Iran already possesses extensive scientific, technological, financial and highly qualified human capital to boost its SME sector. However, it is currently not living up to its potential and there is a need to provide a mechanism for establishing linkages with key stakeholders, including access to finance and relevant advisory support. This way the project builds competitiveness and supports the development of innovative enterprises.

Amir Nazemi, Deputy Minister at Iran’s Ministry of Communication and Information Technology, said, “Aiming to diversify its economy and attract foreign investment, Iran has made a considerable effort to develop a dynamic national innovation system and is moving steadily towards a knowledge- and innovation-based economy. As a result, our human capital is now comprises highly educated and motivated workforce, including scientists, entrepreneurs and business people. Knowledge-based entrepreneurship is a key tool in Iran for employment generation, providing new opportunities for labour market integration of young professionals and serving as a powerful impetus for knowledge-based development of the country’s economy as a whole.”

Based on the findings regarding the existing constraints and opportunities of the ICT sector, the UNIDO project team has proposed a roadmap that envisages short-, medium- and long-term interventions in both public and private sectors, addressing several problem areas, such as knowledge generation and transfer; access to finance; nurturing of entrepreneurial talent and skills, as well as stimulating interaction and collaboration within the ICT ecosystem.

“The level of engagement from prominent public and private sector representatives related to the ICT sector has demonstrated the importance such initiatives have in making the ecosystem for ICT startups more vibrant and sustainable,” said Maryam Javan Shahraki, UNIDO representative in Iran.

She added, “UNIDO looks forward to further extending our support to the government of Iran in its efforts to promote internationalization of ICT-related entrepreneurs through the virtual entrepreneurship hub that will become a major platform for knowledge exchange and support services for ICT startups, as well as facilitating partnerships with domestic and foreign partners and inter-institutional networking.”

As part of the public-private initiative, in cooperation with its national and international partners, UNIDO conducted a two-day workshop for major ICT sector stakeholders, including government entities, entrepreneurs and other key players, to present key findings of the initial phase of the project and the forthcoming action plan, while also providing an opportunity for a thorough exchange on how to reduce the existing  development gaps between science and industry thereby raising Iran’s profile as a knowledge-driven economy.

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