BIZweek n°297 3 jui 2020
BIZweek n°297 3 jui 2020
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  • Parution : n°297 de 3 jui 2020

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 9

  • Taille du fichier PDF : 1,8 Mo

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VENDREDI 03 JUILLET 2020 BIZWEEK ÉDITION 297 PANDEMIC THREAT Remittances to Fall by $100 Billion in 2020 Remittance flows into low-income and fragile states represent a lifeline that supports households as wellas provides much-needed tax revenue. As of 2018, remittance flows to these countries reached $350 billion, surpassing foreign direct investment, portfolio investment, and foreign aid as the single most important source of income from abroad. A drop in remittance flows is likely to heighten economic, fiscal, and social pressures on governments of these countries already struggling to cope even in normal times. Remittances are private income transfers that are countercyclical—that is, they flow from migrants into their source country when that country is experiencing a macroeconomic shock. In this way, they insure families back home against income shocks, supporting and smoothing their consumption. Remittances also finance trade balances and are a source of tax revenue for governments in these countries that rely on value-added tax, trade, and sales taxes (Abdih and others 2012). In this pandemic, the downside effect of remittances dryingup calls for an allhands-on-deck response—not just for the sake of the poor countries, but for the rich ones as well. First, the global community must recognize the benefit of keeping migrants where they are, in their host countries, as much as possible. Retaining migrants helps host countries sustain and restart core services in their economies and allows remittances to recipient countries to POST SCRIPTUM COVID-19 is crippling the economies of rich and poor countries alike. Yet for many low-income and fragile states, the economic shock will be magnified by the loss of remittances. In a new article for F&D, the International Monetary Fund’s Antoinette Sayeh and Ralph Chami dig deeper into how the pandemic threatens to dryup this vital source of income, and what measures can be taken to tackle this challenge keep flowing, even if at a much-reduced level. Second, donor countries and international financial institutions must also step in to help migrant-source countries not only fight the pandemic but also cushion the shock of losing these private income flows, just when these low-income and fragile countries need them most. Transmission of shocks Remittances are income flows that sync the business cycle of many recipient countries with those of sending countries. During good times, this relationship is a win-win, furnishing much-needed labor to fuel the economies of host countries and providing much-needed income to families in the migrants’home countries. However, this close business cycle linkage between host and recipient countries has a downside risk. Shocks to the economies of migrant-host countries—just the sorts of shocks being caused by the coronavirus pandemic—can be transmitted to those of the remittance-recipient countries. For example, for a recipient country that receives remittances representing at least 10 percent of its annual GDP, a 1 percent decrease in the host country’s output gap (the difference between actual and potential growth) will tend to decrease the recipient country’s output gap by almost 1 percent (Barajas and others 2012). Remittances represent much more than 10 percent of GDP for many countries, led by Tajikistan and Bermuda, at more than 30 percent. The pandemic will deliver a blow to remittance flows that may be even worse than during the financial crisis of 2008, and it will come just as poor countries are grappling with the impact of COVID-19 on their own economies. Migrant workers who lose their employment are likely to reduce remittances to their families back home. Recipient countries will lose an important source of income and tax revenue just when they need it most (Abdih and others 2012). In fact, according to the World Bank, remittance flows are expected to drop by about $100 billion in 2020, which represents roughly a 20 percent drop from their 2019 level (see Chart 3). Fiscal and trade balances would be affected, and countries’ability to finance and service their debt would be reduced. Banks in migrant-source countries rely on remittance inflows as a cheap source of deposit funding since these flows are altruistically motivated. Unfortunately, these banks are now likely to see their cost of operations increase, and their ability to extend credit—whether to the private sector or to finance government deficits—will be greatly reduced (Barajas and others 2018). Furthermore, the typically credit-constrained private sector—mostly comprising self-employed people and smalland medium-sized enterprises—is likely to lose remittance funding, in addition to dealing with even tighter credit conditions from banks. All this will come on top of lower demand for their services and products as a result of the crisis. Cont’d on page 7 6
VENDREDI 03 JUILLET 2020 BIZWEEK ÉDITION 297 Chart 1 Stabilizing force Remittances are vital for many low-income and fragile states, serving as a lifeline for these countries when they experience a macroeconomic shock. 300 250 200 150 100 50 0 — Remittances, received — Foreign direct investment, net inflows received — Portfolio equity, inflows -50 1990 95 2000 05 10 15 18 700 - 19):1 [1111 - 30Q - 244 140 (inflows te poor and fragile countries  : 1990-2018, in billions of current dollars) 350 Source  : World Bank, World Development Indicators. Chart 2 Reliance on remittances The 10 largest recipients of remittances are located in diverse regions, with the top ones receiving more than 30 percent of GDP through this channel. Tajikistan Bermuda, 100 19qC Tanga Kyrgyz Republic Nepal Lesotho Haiti Moldova El Salvador Samoa 5 10 15 20 25 30 35 The 10 largest recipients of remittances, 2004-18, percent of GDP Source  : World Bank, World Development Indicators, Chari Steep drop rit inerkre fiole repe

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