August 4, 2020 (MLN): Pakistan could lose around 27% of its international remittances in 2020 under the worst-case scenario because of the COVID-19 pandemic, according to a report by the Asian Development Bank (ADB).
The ADB in its latest report, “Covid-19 Impact on International Migration, Remittances, and Recipient Households in Developing Asia”, placed Pakistan on the fourth number among the likely five worst-affected Asian developing economies after Nepal, Tajikistan and Bangladesh as job losses soared and employers trimmed payrolls.
According to the report, the total remittances to Asia are expected to drop between $31.4 billion (baseline scenario) and $54.3 billion (worst-case scenario) in 2020, equivalent to 11.5% and 19.8% of baseline remittances, respectively.
As the COVID-19 pandemic risks devastating impact on economies around the world, including widespread unemployment and lower incomes. The results show that the COVID-19 impact on remittances ranges from a 5.2% decline from baseline remittances in 2018 for the least affected economy to almost a 30% decline for the most-affected, the report added.
By subregion, remittances in South Asia are expected to fall furthest, by $28.6 billion (24.7% of 2018 receipts), followed by remittances to Central Asia ($3.4 billion, 23.8%), Southeast Asia ($11.7 billion, 18.6%), and East Asia ex-People’s Republic of China and Japan (1.7 billion, 16.2%). Remittances to the Pacific will also fall ($267 million, 13.2%).
In general, the magnitude of the impact on remittances by economy, reflect the distribution of the decline in the GDP observed in the host economies.
The majority of the decline in remittance flows to the region is explained by a $22.5 billion fall in remittances from the Middle East, which accounts for 41.4% of the total remittance loss in Asia. This is followed by a $20.5 billion slump in remittances from the United States, (37.9% of total). The fall in remittances from the EU and the United Kingdom accounts for 6.3% of the total, or $3.4 billion. The decline from the Russian Federation amounts to $2.1 billion, of which $2 billion reflects the decline in remittances going to Central Asia.
By percentage, the Middle East and the Russian Federation experienced the sharpest decline—over a third—primarily reflecting the effects of low demand and oil prices on remittances.
Governments in the region could help manage the impact of COVID-19 on remittances by extending temporary social services to assist stranded and returning migrants; providing income support to poor remittance-recipient families; and designing health, labor, and skills policies to help migrants return to their jobs, or be employed in their home countries.
The report further highlights that in this difficult time, remittance money is a lifeline for many poor and vulnerable families left behind; facilitating smooth flow of funds from migrant workers is crucial.
Host and source countries should continue to recognize remittance service providers as one of the “essential businesses” to allow migrants and families to transact without disruption. Additional measures that allow banks and money transfer operators to better serve customers, such as temporary relaxation of disclosure requirements for remittances directed to countries facing economic and public health crises, or providing tax incentives for money transfer organizations that reduce remittance fees, could be put in place.
In Sri Lanka, while measures are primarily aimed at keeping the overall health of the country’s external position, exemptions for inward remittances from the exchange control regulations and taxes, as well as giving protection under banking secrecy provisions would necessarily benefit remittance recipient households. A similar measure was introduced in Pakistan, which has contributed to a surge in remittance inflow for the first half of the year, the report said.
The report noted that the COVID-19 pandemic is expected to hit remittances hard in Asia and the Pacific. In 2019, India, the People’s Republic of China (PRC), the Philippines, Pakistan, Bangladesh, and Viet Nam were the 6 of the 10 largest remittance recipients globally .That said, the countries likely to face more severe effects from the pandemic-induced decline in remittance inflows are the ones where remittance shares to gross domestic product (GDP) and per capita remittances are high.
Alongside the effects of the pandemic on international and domestic travel, trade, investment flows, and other productive activities, the ADB estimates employment in Asia and the Pacific to be lower by as much as 167 million person months should containment measures last 6 months from when the outbreak first intensified (ADB 2020). Job cuts in the region are reducing wage income, with estimates of the decline projected to range from $359 billion to $550 billion. Migrant workers may be among the hardest hit groups.
Migrants originating from Asia and the Pacific have the largest share as they account for 33% of migrant workers worldwide in 2019. Major destination regions for Asian migrants included Asia (35%), the Middle East (27%), Europe inclusive of the Russian Federation (19%), and North America (18%). All of these regions have been devastated by the economic impacts of the COVID-19 pandemic, with economic output in these economies projected to contract from 6.7% to 10.2% in 2020.
ADB stated that remittances to Asia and the Pacific, amounting to $315 billion in2019, are an important and stable source of income for families back home and help strengthen external financing alongside foreign direct investment and tourism receipts in many developing economies. They boost general consumption as well as investment and help sustain government debts by contributing to the foreign currency revenue base.
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