Global remittances likely to decline by up to 30% over course of this year

Global remittances may fall as much as 30 per cent this year as the coronavirus-induced recession affects countries worldwide, particularly those that account for the bulk of outflows to emerging markets, the Institute of International Finance said.

The forecast echoes that of the World Bank, which said in April it expects remittances to low and middle-income countries to fall by about 20 per cent this year, with only a moderate recovery in 2021

By comparison, in 2009 following the global financial crisis remittances fell by about 5 per cent.

“As the Covid-19 recession affects more countries simultaneously, especially host countries in the EM [emerging markets] universe, a drop of 20 to 30 per cent seems possible,” the IIF said in its latest research.

The Covid-19 outbreak is the biggest challenge facing the world economy since the 1930s, according to the International Monetary Fund, which expects global GDP to contract by 3 per cent this year.

The spread of the virus over the past few months has rattled investors and stifled flows to emerging markets.

Capital flows to emerging markets securities fell 78 per cent in May despite efforts to reopen economies in Asia and North America, the IIF said in its latest Capital Flows Tracker report also published this week.

Remittances are another vital source of external flows to emerging and frontier markets, the IIF said in the remittances research note.

While remittances are more stable than portfolio flows and tend to be counter-cyclical, they will “likely be much lower due to the global and synchronised nature of shocks”, the IIF said.

Economies that account for the bulk of global remittances flows are among the most exposed to the Covid-19 and oil price shocks, according to the IIF.

The US accounts for most of the flows to Latin America, Europe is an importance source for remittances for Africa and Eastern Europe, and GCC-based workers send money to home countries in Africa and Asia.

Emerging markets, including key recipient countries India, China, Mexico, the Philippines, Egypt and Nigeria, account for close to 40 per cent of all remittances in dollar terms.

Countries with high external funding pressures, including those in Central America, Caribbean nations, the Philippines and Egypt, will be among the most exposed, the IIF said.

Capital flows to emerging markets securities fell 78% in May despite efforts to reopen economies