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India is the world’s biggest recipient of remittances, which bolster the country’s foreign exchange reserves and help fund its current account deficit.
In 2019, India is estimated to have received $83.1 billion in remittances from people working overseas, about 12% of the total expected global inflow. The country has foreign exchange reserves of $476 billion, which has helped provide stability despite large portfolio outflows.
Globally, remittances are projected to decline by a record 20% this year from a high of over $714.2 billion in 2019, the World Bank said in a release on Tuesday. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country, it said.
South Asia gets 22% of global remittances, which amounted to $122.4 billion last year.
Adverse Impact on LMIC
The World Bank did not release country-wise details but its estimate for South Asia showed a decline by 22% to $109 billion. India’s neighbours such as Pakistan and Bangladesh also have a substantial number of nationals working in the Middle East and elsewhere.
The sharp decline in crude prices will hurt remittances from oil-producing countries such as Saudi Arabia and the United Arab Emirates.
The decline in flows is likely to have an adverse impact on remittance-dependent countries and low and middle-income countries (LMIC) where remittances are a crucial financing lifeline for many vulnerable households, the World Bank report said.
“The ongoing economic recession caused by Covid-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies,” said World Bank Group president David Malpass. “Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs.”
Remittance flows are expected to become even more important as a source of external financing for LMICs as the fall in foreign direct investment (FDI) is expected to be sharper. In 2019, remittance flows to LMICs exceeded FDI, the World Bank said.
Money transfers meanwhile remain expensive.
“The global average cost of sending $200 remains high at 6.8% in the first quarter of 2020, only slightly below the previous year,” the report said.
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