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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).

Finance

U.S. bank trouble heralds The End of dollar Reserve system

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The US banking system is broken, stresses ‘The Asia Times’. That doesn’t portend more high-profile failures like Credit Suisse. The central banks will keep moribund institutions on life support.

But the era of dollar-based reserves and floating exchange rates that began on August 15, 1971, when the US severed the link between the dollar and gold, is coming to an end. The pain will be transferred from the banks to the real economy, which will starve for credit.

And the geopolitical consequences will be enormous. The seize-up of dollar credit will accelerate the shift to a multipolar reserve system, with advantage to China’s yuan as a competitor to the dollar.

Gold, the “barbarous relic” abhorred by John Maynard Keynes, will play a bigger role because the dollar banking system is dysfunctional, and no other currency — surely not the tightly-controlled yuan — can replace it. Now at an all-time record price of US$2,000 an ounce, gold is likely to rise further.

The greatest danger to dollar hegemony and the strategic power that it imparts to Washington is not China’s ambition to expand the international role of the yuan.

This crisis is utterly unlike 2008, when banks levered up trillions of dollars of dodgy assets based on “liar’s loans” to homeowners. Fifteen years ago, the credit quality of the banking system was rotten and leverage was out of control. Bank credit quality today is the best in a generation. The crisis stems from the now-impossible task of financing America’s ever-expanding foreign debt.

America’s chronic current account deficits of the past 30 years amount to an exchange of goods for paper: America buys more goods than it sells, and sells assets (stocks, bonds, real estate, and so on) to foreigners to make up the difference.

America now owes a net $18 trillion to foreigners, roughly equal to the cumulative sum of these deficits over 30 years. The trouble is that the foreigners who own US assets receive cash flows in dollars, but need to spend money in their own currencies.

Before 1971, when central banks maintained exchange rates at a fixed level and the United States covered its relatively small current account deficit by transferring gold to foreign central banks at a fixed price of $35 an ounce, none of this was necessary.

The end of the gold link to the dollar and the new regime of floating exchange rates allowed the United States to run massive current account deficits by selling its assets to the world.

In effect, the market worries that buying inflation protection from the US government is like passengers on the Titanic buying shipwreck insurance from the captain. The gold market is too big and diverse to manipulate.

The dollar reserve system will go out not with a bang, but a whimper. The central banks will step in to prevent any dramatic failures. But bank balance sheets will shrink, credit to the real economy will diminish and international lending in particular will evaporate.

Southeast Asia will rely more on its own currencies and the yuan. The dollar frog will boil by slow increments.

It’s fortuitous that Western sanctions on Russia during the past year prompted China, Russia, India and the Persian Gulf states to find alternative financing arrangements. These are not a monetary phenomenon, but an expensive, inefficient and cumbersome way to work around the US dollar banking system.

As dollar credit diminishes, though, these alternative arrangements will turn into permanent features of the monetary landscape, and other currencies will continue to gain ground against the dollar, concludes ‘The Asia Times’.

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Finance

Mastering Writing Skills: Write Effectively for Academic and Professional Success

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Most people underestimate the importance of knowing how to write. In school, students are assigned paper after paper. The results help teachers grade their knowledge. But, that’s not the main reason why these are assigned. Essays and other papers give students practice, and a chance to learn effective writing. It’s a lifelong skill that not only serves to land them a passing grade but can also help them boost their professional success later on.

How to Master Your Writing Skills

If you want to make sure that you learn how to write better, both for academic and professional success, here are some tips and tricks for you.

1.Ask Someone to Write for You

The best way to learn how to write is to read what you need to write. If you aim for academic success but don’t know how to craft a paper that gets you an A, get some writing help from a reliable service. Today you can simply go online and request to write my essay and you’ll receive a top-notch assignment. This isn’t just to help you meet a deadline or land a high grade. You can also use it for college learning – to read what a good paper should look like.

When you have a finished piece of writing, this can be your guide. Students often order papers online to meet deadlines or make sure they get a high grade. Even if this is the case, use the opportunity to learn, too – next time you need to craft a similar paper, refer to the one written by an expert to boost your writing skills.

2.Read What You Like

Reading is an amazing way to boost your writing skills. How is this possible, you wonder?

For starters, reading books, articles, other papers, or anything else – can boost your vocabulary. When you read, you also come across different writing styles, giving you ideas for when you need to write.

Even though it might not seem this way when you actually read, reading gives you a lot of useful information that is stored in your subconscious.

3.Practice Writing

If you want to master writing, truly master it, you need practice. Those essay assignments are not enough. You should do some free writing, too. Start your blog or journal, write letters to your peers, join a writing workshop, etc. Just write for the sake of it – practice is very important!

4.Don’t Skimp on the Editing Part

Editing is as important as writing itself – maybe even more important. While some mistakes might be acceptable in school, these are never welcome in professional circles. A single, unintentional mistake can have a devastating effect and ruin the quality or the message in your writing.

Research and writing are tiring, but this is no reason to skip the editing part and submit the work in a rush. If you want to learn to write better, you need to start by editing your work. When you proofread and edit it, you can find the most common mistakes you make and learn how to avoid them.

5.Focus on the Structure

The first draft is often a result of free writing. It’s good to write with the flow without focusing on the details, the mistakes, or the structure. This allows your thought to run without interruptions.

But, you can’t submit the first draft of any writing – not if you want it to be good.

In addition to editing the mistakes out of your writing, focus on the structure, too. Structure makes sure that your ideas get across to those who read the content.

Outlines are very useful for this. Many students see them as a waste of time since they aren’t formally required. However, a good outline can actually cut down the time you spend on editing and formatting your task. It will also make sure that the information in your essay flow and are clear to the reader.

6.Ask for Feedback – and Use It!

Unless you’ve mastered the skill of writing, you’ll make mistakes. This is how you learn, and there’s no shame in it. It’s also the time when feedback can really help you. Ask your mentors, your peers, your parents, and friends to take a look at your writing. Ask them to be blunt and tell you what flaws they find in your writing.

You might not accept all of their notes and feedback, but learning how others view and understand your writing is very useful.

Wrapping Up

Writing requires some talent but most importantly, it requires practice. It is something you learn in time, which is why it’s assigned at every academic level.  So, practice, practice, and practice some more. This is how you’ll master the skill!

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FORBES: Where is the Russian banking crisis?

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“Sanctions were supposed to kill the Russian financial sector. It did, and it didn’t. Where is the Russian banking crisis?” – FORBES is perplexed.

Yes, sanctions have hurt Russia’s financial institutions. But a Russian banking crisis, one that looks like we have seen in the U.S. recently with Silicon Valley Bank and in Switzerland with Credit Suisse, has not occurred.

There were never any runs on Russian banks. The ruble strengthened. And while most banks are protected by the state – led by Sberbank and VTB – the Russian Central Bank has spent much of the last decade working to clean up the financial system.

For this reason, Russian banks have survived the West’s sanctions regime and stock market delistings better than anyone would have imagined. For a cynical Russian, watching Silicon Valley Bank and Credit Suisse burn down while their bankers are gainfully employed is like smirking before the camera lens in front of a burning building.

Had the sanctions come at the time when the Russian Central Bank was cleaning up its “zombie banks” – all hell would have broken loose. But seeing how much of that mess was swept away prior to the 2022 sanctions regimes taking hold, Russia’s banks remain safe and sound, even if Russian investors in those banks have lost their shirt.

The sanctions policy, the hardest ever taken out on Russia, is 13 months old. New ones pop up regularly. It is unclear what can possibly be next, as Russia’s financial institutions have already been largely cut off from the Western system.

Russia’s financial sector, and its banks at home, aren’t making headlines like banks in the U.S. and Europe are. They have withstood the onslaught of sanctions.

They’ve lost their European and U.S. assets, which will not be recovered for years to come, if ever. Sberbank CEO Herman Gref said in press reports that Sberbank is “the most attacked entity” in the country, which experiences “unprecedented challenges in terms of complexity and power.” He said Sberbank lost nearly all of its assets abroad, leading to massive write-downs.

Yet, Russian president Vladimir Putin smirks at the burning buildings of Credit Suisse and the lost $200 billion in Silicon Valley Bank deposits, needing unprecedented FDIC support to protect account holders. The bank is now insolvent. His biggest banks remain only because most of Russia’s banks over the years have been folded and rendered insolvent. And a danger to the Russian financial system was liquidated.

“Thanks to the professional actions of our banking community, government agencies, and the efforts of the central bank, I want to emphasize that we managed to overcome all these (sanctions) difficulties in general,” Putin reportedly said in Moscow earlier this month after meeting with Sberbank’s CEO. He said that Sberbank’s current stable position was “a good signal for the whole economy.”

With sanctions expected to remain for a long time to come, will Russia’s heavily sanctioned banks fold one day, too?

“Who knows what will happen in Russia, because we all only know what we read in the press and what we read in the press is that Russia did a smart job handling their banks pre-sanctions and so after sanctions they have managed okay,” says famous commodities investor Jim Rogers from his home in Singapore, who has been a director of Russian fertilizer company PhosAgro. “We saw the ruble go down when sanctions were first imposed, then it went up. So in that case alone, the market tells me that somebody in Russia did something right,” he says.

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