Thus, the surge in remittances is 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 three hundred thousand expatriate workers retuned home due to job cuts, closure of businesses, and the need for only skilled and specialised workforce in many host countries.
The unexpected surge in remittance in many remittance-receiving countries during the pandemic is no doubt surprising. Despite so many odds, it is true inward remittance has experienced a boom in some developing countries as their migrant workers are apparently undeterred by the onslaught of the covid-19.
Among the countries are Mexico, Bangladesh, El Salvador, Kenya, Pakistan, Philippines and Sri Lanka. In recent months, resurgent remittance flows 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 sense of certainty lurking anywhere 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 with 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 the 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. 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, the use of migrant workers’ remittance is still more on consumption than investment.
In this corona-inflicted time, although it is good news that the families back home are continuing to receive remittances, the fact remains that consumption on food, education and healthcare is of a very high priority than anything else. Due to widespread poverty, spending remittances on consumption is likely to remain high in the future. 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 accumulated over years of stay and hard work.
Thus, the surge in remittances is 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 three hundred thousand expatriate workers retuned home due to job cuts, closure of businesses, and the need for only skilled and specialised workforce in many host countries.
While vaccinations should help economic activity return to normal, the risk of mounting job losses means such flows — a significant source of foreign exchange revenue and gross domestic product for many emerging countries — may falter in 2021. In October, the World Bank revised its 2020 estimated drop in flows to low-and middle-income countries to 7 per cent from 19.7 per cent previously but predicted a further 7.5 per cent dip this year. That is a deeper and more prolonged 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 tamed, which only can come with vaccination, remittance-receiving countries may have to wait with fingers crossed.
Cover image source: Internet
Wasi Ahmed, a novelist, short story writer, and journalist, lives in Dhaka.
