Despite the global economic turmoil, remittances remained remarkable resilient during the pandemic. Reforms are needed to keep this financial lifeline strong in the years ahead.
The COVID-19 pandemic hit migrant workers globally especially hard in 2020, as economic contraction and border restrictions left millions jobless and with limited social protection. As a result, remittances oscillated in Asia and the Pacific in 2020, according to new data from ADB’s Basic Statistics 2022 publication.
In response to greater economic need at home during the pandemic and in a nod to the resilience of migrant workers, in some cases, remittances appear to have increased in 2020 compared to 2019. Remittances as a proportion of GDP rose in India, Bangladesh, Georgia, Pakistan, the Philippines, Bhutan, Azerbaijan, and Kyrgyz Republic. Some of these proportional increases in remittances, however, were offset by reduced GDP growth in those countries.
The resilience of remittances in South Asia when the pandemic was at its height was partly explained by the fact that many jobless migrants returning to India or Bangladesh from the Middle East brought not only their wages but their savings too.
Some migrant origin countries, such as Pakistan and Sri Lanka, introduced measures to encourage migrants to send money home. Under the Pakistan Remittances Initiative, the government lowered the threshold for eligible transactions for cash rebates from $200 to $100 under the Reimbursement of Telegraphic Transfer Charges Scheme. In Sri Lanka, exchange control regulations and taxes were eased for inward remittances.
Altruism also played a role. Researchers noted that a survey by WorldRemit in mid-2020 found that 84% of over 3,000 overseas Filipinos from the United Kingdom, the United States, Canada, and Australia planned to send home the same amount or more money during the pandemic.
In Bangladesh, where remittances as a percentage of GDP rose from 6.1% in 2019 to 6.7% in 2020, serious floods and landslides struck in July 2020 possibly prompting affected families to seek additional help from relatives abroad.
Another important reason remittances were able to largely weather the pandemic, was the availability of social and financial assistance to migrant workers in developed countries as the pandemic raged. Many wealthy countries introduced furlough schemes, supplemented existing unemployment insurance, and expanded social support, allowing migrants to continue sending money home.
Technology also came to the rescue. Financial innovation enabled migrants to transfer money digitally even during lockdowns and travel bans. The traditional option of carrying money home was almost impossible for millions of Asians working abroad with many borders closed.
The shift to more formal, digital methods of money transfer was facilitated by the rapid development of fintech and digital transfer apps such as Google Pay and AliPay. These important innovations made transfers more accessible and cheaper, leading to an overall increase in remittances in many countries.
In some parts of Asia though, remittances were significantly reduced during the worst of the pandemic with many low-income developing Asian countries which rely heavily on remittances, were impacted. Remittances declined in 2020 in Tajikistan and Nepal, where they make up 26.7% and 24.1% respectively of annual GDP. Remittances were also reduced in Cambodia, Myanmar, and Viet Nam.
The fact that remittance flows varied considerably throughout the region during the COVID-19 pandemic is related to a number of variables in migrant host countries such as vulnerability to the pandemic and levels of social support. The data also suggest that in countries where remittances declined, governments could have taken more aggressive measures, such as relaxing exchange controls, to keep inward money flows from labor migrants buoyant. Failing to rapidly create an enabling environment for fintech and digital payment instruments for international remittances may also have made a difference.
The pandemic has highlighted the crucial role remittances play in Asia’s developing countries, particularly during crises, but it has also underlined many shortcomings. Remittance prices across Asia vary, but all are above the Sustainable Development Goal 10 global target of reducing the price to 3% of a transaction. Informal remittances are particularly expensive, and some regulatory environments are too restrictive.
Digitalization can help address some of these challenges. In addition, sending and receiving countries should address regulatory and infrastructure barriers to facilitate digital transactions. Universal financial access in receiving countries and among migrant workers in sending countries is also very important in making remittances easier, cheaper, and more widespread.
Remittances are a financial lifeline for many families in Asia. Though these transactions have proven resilient during the pandemic, greater support through policy measures and digitalization efforts are needed.