June 26, 2020 / 3:38 AM / 12 days ago

Breakingviews - Remittance woes will transfer from poor to rich

Philippine Peso bills sent by a Filipino working abroad are pictured being received by a relative at a money remittance center in Makati City, Metro Manila, Philippines, September 19, 2018. REUTERS/Eloisa Lopez

MUMBAI (Reuters Breakingviews) - The pain of shrinking remittances will be shared. From tech engineers in Silicon Valley to construction crews in the Arabian Gulf to domestic helpers in Lebanon, the global economic slump and accompanying job losses could fall by a record sum, lopping a fifth off some $700 billion sent home annually by such workers, according to the Pew Research Center. That money is a lifeline for poorer nations, which will be hit first. Richer countries should expect to suffer too. 

Such flows can seem one-way. Almost 80% of remittances go to low- and middle-income countries, per the World Bank, providing critical support especially when recipient economies are struggling. The payments are often a steadier source of vital foreign currency than overseas portfolio or direct investments. The pandemic has all parts of the globe hurting at once, however. 

Frontier markets are on the front lines. Remittances account for over one-third of GDP in Haiti, South Sudan and Tonga. It’s a worrying 10% for the Philippines. India and China receive the biggest amounts from workers overseas, but inflows account for 3% or less of GDP. The two Asian giants face their own daunting problems with unemployed domestic migrants, however, as earnings from the big cities support families in the villages. Lower remittances will weigh on consumption and related tax revenue. 

Existing trends also stand to accelerate as countries become more protectionist. The rate of growth for remittances was already slowing. Since the end of the global financial crisis, annual volumes have contracted or grown in mostly single digits compared to double-digit growth in the eight years prior to 2009. 

Richer nations could be delaying their own recoveries. The Trump administration’s decision to suspend the H-1B visa programme for the rest of the year, for example, may leave Amazon, Tata Consultancy Services and others facing a shortage of high-skilled workers. Other places that send jobless migrants home will have to start the tedious process of bringing them back and training them again later, and it increases the risk poor countries will need financial support from multilateral organisations largely funded by wealthier countries. That gives them both humanitarian and selfish reasons to consider policies carefully.  

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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