Despite COVID-19, remittance flows remained resilient in 2020, registering a smaller decline than previously projected. Officially recorded remittance flows to low- and middle-income countries reached $540 billion in 2020, just 1.6 percent below the 2019 total of $548 billion, according to the latest Migration and Development Brief.
The decline in recorded remittance flows in 2020 was smaller than the one during the 2009 global financial crisis (4.8 percent). It was also far lower than the fall in foreign direct investment (FDI) flows to low- and middle-income countries, which, excluding flows to China, fell by over 30 percent in 2020. As a result, remittance flows to low- and middle-income countries surpassed the sum of FDI ($259 billion) and overseas development assistance ($179 billion) in 2020.
The main drivers for the steady flow included fiscal stimulus that resulted in better-than-expected economic conditions in host countries, a shift in flows from cash to digital and from informal to formal channels, and cyclical movements in oil prices and currency exchange rates. The true size of remittances, which includes formal and informal flows, is believed to be larger than officially reported data, though the extent of the impact of COVID-19 on informal flows is unclear.
“As COVID-19 still devastates families around the world, remittances continue to provide a critical lifeline for the poor and vulnerable,” said Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank. “Supportive policy responses, together with national social protection systems, should continue to be inclusive of all communities, including migrants.”
Remittance inflows rose in Latin America and the Caribbean (6.5 percent), South Asia (5.2 percent) and the Middle East and North Africa (2.3 percent). However, remittance flows fell for East Asia and the Pacific (7.9 percent), for Europe and Central Asia (9.7 percent), and for Sub-Saharan Africa (12.5 percent). The decline in flows to Sub-Saharan Africa was almost entirely due to a 28 percent decline in remittance flows to Nigeria. Excluding flows to Nigeria, remittances to Sub-Saharan Africa increased by 2.3 percent, demonstrating resilience.
The relatively strong performance of remittance flows during the COVID-19 crisis has also highlighted the importance of timely availability of data. Given its growing significance as a source of external financing for low- and middle-income countries, there is a need for better collection of data on remittances, in terms of frequency, timely reporting, and granularity by corridor and channel.
“The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support,” said Dilip Ratha, lead author of the report on migration and remittances and head of KNOMAD. “They can no longer be treated as small change. The World Bank has been monitoring migration and remittance flows for nearly two decades, and we are working with governments and partners to produce timely data and make remittance flows even more productive.”
The World Bank is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affect remittance flows. It is working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.
With global growth expected to rebound further in 2021 and 2022, remittance flows to low- and middle-
income countries are expected to increase by 2.6 percent to $553 billion in 2021 and by 2.2 percent to $565 billion in 2022. Even as many high-income nations have made significant progress in vaccinating their populations, infections are still high in several large developing economies and the outlook for remittances remains uncertain.
The global average cost of sending $200 remained high at 6.5 percent in the fourth quarter of 2020, more than double the Sustainable Development Goal target of 3 percent. Average remittance costs were the lowest in South Asia (4.9 percent), while Sub-Saharan Africa continued to have the highest average cost (8.2 percent). Supporting the remittance infrastructure and keeping remittances flowing includes efforts to lower fees.
Regional Remittance Trends
Formal remittance flows to the East Asia and Pacific region fell by an estimated 7.9 percent in 2020 to around $136 billion due to the adverse impact of COVID-19. Positive growth in remittances from the United States and Asia helped to mostly offset declines from the Middle East and Europe, which fell by 10.6 percent and 10.8 percent respectively in 2020. The top recipients in terms of the share of remittances in GDP in 2020 include many smaller economies such as Tonga (38 percent), Samoa (19 percent), and Marshall Islands (13 percent). For 2021, a modest growth of about 2.1 percent is expected due to anticipated recovery in major host economies such as Saudi Arabia, the United States and the United Arab Emirates. Remittance costs: According to the World Bank Remittances Prices Worldwide, the average cost of sending $200 to the region fell slightly to 6.9 percent in the fourth quarter of 2020. The lowest-cost corridors in the region averaged 3 percent for transfers primarily to the Philippines, while the highest-cost corridors, excluding South Africa to China, which is an outlier, averaged 13 percent.
Remittances to Europe and Central Asia fell by about 9.7 percent to $56 billion in 2020 as the global pandemic and weak oil prices had a significant impact on migrant workers across the region. The economic crisis of 2020 was not unprecedented compared to the past crises of 2009 and 2015, which saw remittances to the region fall by 11 and 15 percent, respectively. Nearly all the countries in the region experienced declines in remittances in 2020. The depreciation of the Russian ruble significantly lowered the US dollar value of remittance flows to the region. For 2021, remittance flows are estimated to fall further by 3.2 percent as the region’s economies are expected to recover from the crisis slowly. Remittance costs: The average cost of sending $200 to the region fell modestly to 6.4 percent in the fourth quarter of 2020. Russia remained the lowest-cost sender of remittances globally, with the cost of remitting from the country falling from 2.1 percent to 1 percent. Within the region, the differences in costs across corridors are substantial: the highest costs for sending remittances were from Turkey to Bulgaria, while the lowest costs for sending remittances were from Russia to Georgia.
Remittances flows to Latin America and the Caribbean grew an estimated 6.5 percent to $103 billion in 2020. While COVID-19 caused a sudden decrease in the volume of remittances in the second quarter of 2020, remittances rebounded during the third and fourth quarters. The improvement in the employment situation in the United States, although not yet to pre-pandemic levels, supported the increase in remittance flows to countries such as Mexico, Guatemala, Dominican Republic, Colombia, El Salvador, Honduras and Jamaica, for whom the bulk of remittances originate from migrants working in the United States. On the other hand, the weaker economic situation in Spain negatively affected remittance flows to Bolivia (-16 percent), Paraguay (-12.4 percent) and Peru (-11.7 percent) in 2020. In 2021, remittance flows to the region are expected to grow by 4.9 percent. Remittance costs: The cost of remittance transfers to the region was 5.6 percent in the fourth quarter of 2020. In many smaller remittance corridors, however, costs continue to be exorbitant. For example, the cost of sending money to Cuba exceeds 9 percent. Sending money from Japan to Brazil is also expensive (11.5 percent).
Remittance flows to the Middle East and North Africa region rose by 2.3 percent to about $56 billion in 2020. The growth is largely credited to strong remittance flows to Egypt and Morocco. Flows to Egypt increased 11 percent to a record high of nearly $30 billion in 2020, while flows to Morocco rose 6.5 percent. Also registering an increase was Tunisia (2.5 percent). In contrast, other economies in the region experienced losses in 2020, with Djibouti, Lebanon, Iraq, and Jordan posting double-digit declines. In 2021, remittances to the region is likely to grow 2.6 percent due to moderate growth in the euro area and weak outflows from the Gulf Cooperation Council (GCC) countries. Remittance costs: The cost of sending $200 to the region fell slightly in the fourth quarter of 2020 to 6.6 percent. Costs vary greatly across corridors: the cost of sending money from high-income countries of the Organisation for Economic Co-operation and Development to Lebanon remained very high, mostly in the double digits. On the other hand, sending money from GCC countries to Egypt and Jordan costs around 3 percent in some corridors.
Inward remittance flows to South Asia rose by about 5.2 percent in 2020 to $147 billion, driven by surge in flows to Bangladesh and Pakistan. In India, the region’s largest recipient country by far, remittances fell by just 0.2 percent in 2020, with much of the decline due to a 17 percent drop in remittances from the United Arab Emirates, which offset resilient flows from the United States and other host countries. In Pakistan, remittances rose by about 17 percent, with the biggest growth coming from Saudi Arabia followed by the European Union countries and the United Arab Emirates. In Bangladesh, remittances also showed a brisk uptick in 2020 (18.4 percent), and Sri Lanka witnessed remittance growth of 5.8 percent. In contrast, remittances to Nepal fell by about 2 percent, reflecting a 17 percent decline in the first quarter of 2020. For 2021, it is projected that remittances to the region will slow slightly to 3.5 percent due to a moderation of growth in high-income economies and a further expected drop in migration to the GCC countries. Remittance costs:The average cost of sending $200 to the region stood at 4.9 percent in the fourth quarter of 2020, the lowest among all the regions. Some of the lowest-cost corridors, originating in the GCC countries and Singapore, had costs below the SDG target of 3 percent owing to high volumes, competitive markets, and deployment of technology. But costs are well over 10 percent in the highest-cost corridors.
Remittances to Sub-Saharan Africa declined by an estimated 12.5 percent in 2020 to $42 billion. The decline was almost entirely due to a 27.7 percent decline in remittance flows to Nigeria, which alone accounted for over 40 percent of remittance flows to the region. Excluding Nigeria, remittance flows to Sub-Saharan African increased by 2.3 percent. Remittance growth was reported in Zambia (37 percent), Mozambique (16 percent), Kenya (9 percent) and Ghana (5 percent). In 2021, remittance flows to the region are projected to rise by 2.6 percent, supported by improving prospects for growth in high-income countries. Data on remittance flows to Sub-Saharan Africa are sparse and of uneven quality, with some countries still using the outdated Fourth IMF Balance of Payments Manual rather than the Sixth, while several other countries do not report data at all. High-frequency phone surveys in some countries reported decreases in remittances for a large percentage of households even while recorded remittances reported by official sources report increases in flows. The shift from informal to formal channels due to the closure of borders explains in part the increase in the volume of remittances recorded by central banks. Remittance costs: Sub-Saharan Africa remains the most expensive region to send money to, where sending $200 costs an average of 8.2 percent in the fourth quarter of 2020. Within the region, which experiences high intra-regional migration, it is expensive to send money from South Africa to Botswana (19.6 percent), Zimbabwe (14 percent to), and to Malawi (16 percent).
Action on Trade is Necessary for Businesses to Unlock Net Zero Targets
For businesses to reach their emission targets, the global trading system needs to adapt, and businesses are calling for the change.
These are the main findings of the Delivering a Climate Trade Agenda: Industry Insights Report released today by the World Economic Forum, in collaboration with Clifford Chance.
The six-month study is based on research and interviews with global companies, across sectors including transport, energy, manufacturing, and consumer goods. The objective of the research process was to identify necessary changes to the current global trade system and how to better incentivize and accelerate decarbonization. The resulting study outlines eight key actions that, if taken by governments and businesses, could make global trade a better enabler of climate action.
Sean Doherty, Head of International Trade and Investment said: “Traditionally, trade and climate policy-making has happened in separate silos. The urgency of the climate crisis calls for us to break down these silos through public-private cooperation in order to accelerate emissions reductions while achieving prosperity for all. The good news for policy makers is businesses are ready and willing to support this change.”
Jessica Gladstone, Partner at Clifford Chance said: “International trade will play a key role in achieving a just transition to a low-carbon sustainable global economy. Businesses stand ready to lead in this transition, but governments can support by ensuring the right legislative and regulatory structures are in place. Our report explores global and domestic policy actions that can create climate-friendly trade that is fair, transparent, and has technology and innovation at its core.”
Interviews revealed the following ways for trade to support businesses to decarbonize and grow sustainably:
- Tariff reductions on key goods
- Addressing non-tariff distortions in parallel
- Phasing out fossil fuel subsidies
- Building coherence around carbon-based trade policies
- Supporting trade in digital and climate-related services
- Encouraging climate-smart agriculture
- Aligning trade agreements with climate commitments
- Facilitating green investment
The chart below provides examples of how the global trading system can through continued dialogue between governments and the private sector put trade to the service of climate action.
The report includes a jointly-authored foreword by the World Trade Organization (WTO) Director General Ngozi Okonjo-Iweala and the United Nations Framework Convention on Climate Change (UNFCCC) Executive Secretary welcoming the insights from business. Major intergovernmental meetings will be held under both organisations in the last quarter of this year.
Business can take steps to encourage alignment of trade rules with climate action. The Forum is today launching a two-year work programme – titled Climate Trade Zero – to support public and private exchange on these issues as part of building a more sustainable trading system.
Many companies also recognized that the transition is taking place at different speeds and levels of intensity across countries and sectors. Interviewees highlighted the importance of providing support and incentives to developing countries, and to supply chain partners in developing countries, to undertake the investments necessary to reduce their emissions.
Appliance standards and labelling is highly effective at reducing energy use
Policies that introduce minimum efficiency performance standards and energy-consumption labelling on appliances and equipment have led to reduced power consumption, lower carbon emissions, and cost savings for consumers, according to analysis published today by the IEA and the 4E Technology Collaboration Programme (4E TCP).
The report’s findings are drawn from nearly 400 evaluation studies covering 100 countries, including those with the longest running and strongest appliance policies, such as China, European Union, Japan and the United States.
“The findings from the study are important as they provide evidence that standards and labelling are highly effective policy instruments that bring benefits to consumers as well as lower emissions and lower energy demand,” said Brian Motherway, the Head of Energy Efficiency at the IEA.
The study shows the policies have had significant positive impacts:
- In countries with long-running policies, appliances are now typically consuming 30% less energy than they would have done otherwise.
- In the nine countries/regions for which data were available, such programmes reduced annual electricity consumption by a total of around 1 580 terawatt-hours in 2018 – similar to the total electricity generation of wind and solar energy in those countries.
- The programmes that have been operating the longest, such as those in the United States and the European Union, are estimated to deliver annual reductions of around 15% of their current total national electricity consumption. This percentage increases each year as more of the older, less-efficient stock is replaced with equipment that meets new higher efficiency standards.
- These energy savings represent a significant financial boon for businesses and householders. In the United States alone, utility customers are now economising USD 60 billion each year, or USD 320 per customer.
- Also, the United States, European Union and China together are avoiding annual CO2 emissions of more than 700 million tonnes, equivalent to the total energy-related emissions of Germany.
- Well-designed policies encourage product innovation and lead to economies of scale, which reduces the cost of appliances even without accounting for the efficiency gains. For example, in Australia the sticker price of appliances has typically fallen 40% over the last 20 years, while average energy consumption has fallen by a third.
“The message is simple: expanding standards and energy efficiency labelling programmes makes the energy transition challenge easier, more affordable and become a reality,” said Jamie Hulan, the Chair of the 4E TCP.
The IEA will continue to collaborate with 4E TCP to enhance and promote the use of such policies. 4E TCP is an international platform for fourteen countries and the European Union to exchange technical and policy information focused on increasing the production and trade in efficient end-use equipment.
Ahead of this November’s COP26 Climate Change Conference, the IEA is working with the UK Government via the Super-Efficient Equipment and Appliance Deployment (SEAD) initiative to coordinate and improve international action on product energy efficiency. The United Kingdom is leading the COP26 Product Efficiency Call to Action, which aims to double the efficiency of key global products by 2030, initially focusing on four key energy-consuming products: air conditioners, refrigerators, lighting and industrial motors systems. The IEA is supporting the implementation of this work and helping expand the number of countries ready to make this commitment.
Global economy projected to show fastest growth in 50 years
The global economy is expected to bounce back this year with growth of 5.3 per cent, the fastest in nearly five decades, according to the UN Conference on Trade and Development (UNCTAD).
In its new report released on Wednesday, the agency said that the rebound was highly uneven along regional, sectoral and income lines, however.
During 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income levels trailing some 3.7 per cent below the pre-pandemic trend line.
The report also warns that growth deceleration could be bigger than expected, if policymakers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity.
Differences in growth
The report says that, while the response saw an end to public spending constraints in many developed countries, international rules and practices have locked developing countries into pre-pandemic responses, and a semi-permanent state of economic stress.
Many countries in the South have been hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for maneuvering their way out through public spending.
Lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade”.
“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD.
“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.”
Lessons of the pandemic
UNCTAD includes several proposals in the report that are drawn from the lessons of the pandemic.
They include concerted debt relief and even cancellation in some cases, a reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment.
Even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945.
Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices.
After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again, according to the trade and development body’s analysis.
Food prices and global trade
Despite current trends on inflation, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis.
Globally, international trade in goods and services has recovered, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier.
The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. Still, the consequences of the crisis will continue to weigh on the trade performance in the years ahead.
For director of UNCTAD’s globalization and development strategies division, Richard Kozul-Wright, “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.”
“In less than a year, wide-ranging US policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.”
The report highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine-related intellectual property rights.
UNCTAD warns, though, that these proposals “will need much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyperglobalization and the deepening environmental crisis in a timely manner.”
For the UN agency, the biggest risk for the global economy is that “a rebound in the North will divert attention from long-needed reforms without which developing countries will remain in a weak and vulnerable position.”
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