Bits Of Good

As the economic crisis triggered by the COVID-19 pandemic deepens in the Developing World due to the economic downturn, the situation has become even more critical for remittance dependent economies as more and more migrants become unable to keep supporting their loved ones back home.

On that subject, a few days ago I stumbled upon this extremely insightful interview with Dilip Ratha, World Bank's Lead Economist on Migration & Remittances, touching the threat to the flow of remittances.

In this interview, part of the World Bank Live series titled “How Can we keep Remittances Flowing?”, a crucial question is posed for which answers need to be found from different angles. Most of these are covered by Dilip Ratha during the interview, ranging from including migrants in relief policies to labeling money transfer firms as essential business to mitigate disruption.

Ahead of starting the conversation, which lasts about twenty minutes, the interviewer, Paul Blake (who has also a role at the World Bank as External Affairs Officer) goes back to an earlier exchange he had with Ratha back in December 2019 when remittances had a completely different outlook. In this discussion Ratha mentioned a few facts that highlight the magnitude of remittances worldwide:

💬 2019 remittances totaled a whopping 550 billion USD to poor countries, exceeding foreign direct investment from multinationals to these economies.

💬 Remittances are around 3x the size of all development aid sent to these countries.

Dilip Ratha's opening comments went in the direction of stressing the criticality of the situation around international remittances, stating that the World Bank foresees a 20% drop for 2020 (From 554 billion to 445 billion USD), indicating a lifeline to poor countries is ruptured, as a result of the loss of jobs because of the pandemic.

The main impact will come from the fact that people are not getting jobs, so migrants are work vulnerable during times of crisis and they will lose their jobs or their incomes will fall, so their ability to send money will go down.
There are of course other spill over effects that come from the economic activity goes down then there are ripple effects so to say.

Dilip Ratha also gives a bit more context on this scenario, pointing out that there is about 270 million migrants around the world, who tend to be concentrated in large cities (prone to lock downs). Furthermore, he points out that for every migrant there may be from three to four or even more people on the other side of the remittance corridors that strongly rely on the money received, which is mostly used to cover basic life expenses like food, medicines and education.

The discussion also covered the industries impacted the most by COVID-19 including money transfer providers themselves, whom according to Ratha should be added to the category of 'essential businesses' to still allow for those migrants that are able to send money back home to continue to do so, given that most of the remittances are managed cash-to-cash, by sending and receiving the money via physical locations.

Interestingly, however, Dilip Ratha also mentioned the risk of cash as a transmitter to the virus and how this is still a risk:

Most people in the world do not have access to such IT or digital means for sending money home.
80 to 85% of the money sent internationally is cash-to-cash, and we know cash is not OK now also because of the risk of the virus.

While adding money transfer services as an essential business is a great idea to help maintain the flow of remittances in the short term, the risk of transmission via cash alone seems as a reason strong enough for developing digital means of payments that are widely accessible.

Also to put things in perspective, Ratha pointed out that during the financial crisis of 2008, the drop in international remittances was around 5% (and bounced back by 2010) compared to the 20% drop foreseen as an effect of COVID-19.

In terms of the response to the COVID-19 pandemic, Dilip Ratha called for the inclusion of migrants in relief measures taken by the governments as the most important policy recommendation, in addition to the urgent need of bringing the unbanked to the banking sector specially in remittance recipient economies so they can make use of digital means to send and receive money.

With so much happening in the World, it is essential that we don't lose sight of the serious negative impact that a prolonged drop in international remittances would have on the lives of millions of people, most of them already in distress as their own sources of income have also been severely disrupted. Technologies and policies that ensure financial inclusion can't come soon enough.

https://www.pscp.tv/w/1gqxvEVVlXaJB

If you are interested in watching the session, you can find it in the link above.

Photo by Annie Spratt on Unsplash

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