One of the most dreaded fallouts since the Covid pandemic had hit countries across the globe was a probable shrinkage in overseas remittance. As remittance matters, more than anything in terms of employment of large numbers of workers abroad and the money they send home, decline in receipts was feared to trigger more misery in countries reliant on remittance from expatriate workers. However, this has not happened. Many remittance receiving countries are surprised to find that money sent by their migrant workers have soared during the pandemic.
Among the countries are Mexico, Bangladesh, El Salvador, Kenya, Pakistan, the Philippines and Sri Lanka. Resurgence in remittance flows in recent months helped them narrow their current account gaps, stabilise currencies and meet overseas debt payments. These countries have led a surprise recovery in remittances in the second half of 2020, as the slowdown in flows amid the pandemic proved less severe than initially feared.
No doubt, migrants have cushioned the pandemic's economic blow, drawing down savings to help out families back home and sending more money via official channels rather than through unofficial, clandestine means. This is considered a tonic at a time when income losses in scores of areas -- in small and medium businesses and salaried incomes -- have brought havoc with hardly any positive signal beckoning in the horizon. For some countries, it is the remittance that takes care of innumerable families back home. Food, shelter, education of children, healthcare expenses are all met from the money received from abroad.
There is, however, a misconceived perception about the resurgence of foreign income. Emre Akcakmak, portfolio manager at East Capital, a specialist in emerging and frontier markets has remarked, "Countries like Bangladesh, Pakistan, and Philippines, which receive about 9 per cent or 10 per cent of GDP from remittances, have a window of opportunity to invest these flows into productive areas of the economy to help their recoveries because at some point this window may close as people may lose their jobs or decide to go back to their home countries." This is rather a generalised and sweeping statement as it is the country-specific scenario that explains how the money is spent, or whether there is an option to better spend it, say, in productive investments. The situation in the Philippines or Mexico is not necessarily the same as in, for example, Bangladesh. Overseas remittance is the second largest source of foreign exchange earning of the country, next only to the number-one export item-- garments. It is primarily the dearth of employment opportunities of unskilled or semi-skilled workers at home that motivated Bangladeshi workers to migrate abroad in large numbers over the past decades. Despite the flow of migrant workers increasing across vast swathes of the globe, and contributing to the economy, the pattern of spending the remittances has, for the most part, remained unchanged. That is to say, use of migrant workers' remittance is still more on consumption than investment.
In this corona-inflicted time, although it is a good piece of news that the families back home are continuing to receive remittances, the fact remains that consumption of food, education and healthcare is of very high priority than anything else. Due to widespread poverty, the tendency to spend remittances on consumption is likely to remain high in the future too. In this context it is understandable that the surge in inward flows is due mainly to the insecurity prevailing in host countries that cause the workers to send whatever they earn including any savings they may have been able to accumulate over years of stay and with hard work.
The surge in remittances is thus not a natural phenomenon and hoping for it to continue is not likely to be the case. Job cuts are quite frequent in many of the host countries, and as a result, the number of returnees is increasing. In Bangladesh, till December last, around 300,000 expat workers retuned home due to job cuts, closure of businesses, and the need for only skilled and specialised workforce in many of the host countries.
While vaccinations should help economic activity to return to normal, the risk of mounting job losses means such flows -- a major source of forex revenue and gross domestic product for many emerging countries -- may falter in 2021. The World Bank in October revised its 2020 estimated drop in flows to low-and middle-income countries to 7.0 per cent from 19.7 per cent previously, but predicted a further 7.5 per cent dip this year. That is a deeper and longer downturn than during the global financial crisis, when flows shrank 4.9 per cent in 2009, before rebounding 11.8 per cent a year later.
Most observers believe that until the pandemic is gone or significantly brought under control with vaccination, remittance-receiving countries like ours may have to keep their fingers crossed.