Supporting Migrants and Remittances as COVID-19 Rages On
IMF Blog, September 11, 2020
Source details
- Canonical URL
- Supporting Migrants and Remittances as COVID-19 Rages On
Other formats
Bibliographic details
- Authors: Roland Kangni Kpodar
- Published: September 11, 2020
The plight of migrant workers
- COVID-19 has had an oversized negative impact on migrant workers globally.
- Many overseas foreign workers lost their jobs and were stranded in host countries without means to return home.
- Migrants, many undocumented, often lack access to social safety nets or stimulus checks that local workers receive; this is especially the case for the undocumented or those on temporary work visas.
- Many migrant workers have limited or no access to healthcare; crowded living quarters and poor working conditions increase infection risk.
- Some migrants live in fear of deportation as several countries tightened immigration rules in response to the coronavirus outbreak.
- Overseas workers often fill essential roles—in healthcare, agriculture, food production and processing—and often risk their lives to perform these jobs.
- Examples of policy responses in host countries:
- Portugal: all migrants and asylum-seekers were temporarily granted citizenship rights.
- Italy: announced plans for temporary work permits for more than half a million undocumented migrants deemed essential for harvesting crops and caring for the elderly.
- State of California: contributed $75 million to a $125 million fund to provide $500 to support each undocumented worker.
Outlook for remittances
- Remittances are a crucial source of external financing; in 57 countries, remittances exceeded 5 percent of GDP last year.
- Remittances went mostly to low-income households; in the current health crisis the need for that income is acute.
- The World Bank estimated in April that remittances would fall by 20 percent in low and middle-income countries.
- That World Bank estimate is broadly consistent with projections derived from applying the elasticity of remittances to growth—observed during the 2008 global financial crisis—to the June 2020 forecasts of the International Monetary Fund’s World Economic Outlook.
- Remittances often hold up in response to adverse shocks in recipient countries; this counter-cyclical role possibly explains surprising resilience in many countries in the first half of the year.
- Observed pattern in 2020:
- Remittances largely fell from March, then started to stabilize in May before picking up.
- The pattern was broadly in line with the stringency of virus containment policies in advanced countries, with strict measures put in place in March and slowly relaxed starting in May.
- Risks to remittance flows:
- If migrants dip into meager savings to support families, this may not be sustainable if recessions in host economies are protracted.
- A second outbreak of the coronavirus in the later part of the year in host economies could jeopardize remittance flows further.
- Specific sectoral impact:
- Hundreds of thousands of migrant workers employed in major oil-producing countries suffered from the drop in oil prices, weighing down the outlook of Gulf Cooperation Council countries and Russia.
- Cost of sending remittances:
- The average cost of sending remittances was about 7 percent in the first quarter of 2020.
Policy recommendations and measures to support migrants and remittance flows
- Host country measures to support migrants:
- Ensure all migrants have access to health care, and basic goods and services.
- Grant temporary legal protections or permits where appropriate (examples noted: Portugal, Italy, California).
- Sending country measures to protect recipients:
- Step up support to vulnerable households where remittance drops are severe.
- Use well-targeted cash transfers and food aid to protect poor households and those at risk of falling back into poverty.
- Support for returning migrants:
- Provide training to help returning migrants be reabsorbed in the labor market.
- Improve access to credit to help returnees start businesses where formal labor market opportunities are limited.
- Leverage technology to reduce costs and facilitate flows:
- Use digital technology and mobile payment systems to facilitate and lower the cost of sending and receiving remittances.
- Modify regulations to facilitate flows while minimizing risks of inappropriate use (for example, relax caps on how much can be transferred digitally).
- Fiscal and market measures to lower remittance costs:
- Provide tax incentives to money transfer service providers to offset reduction in fees (example: Pakistan during the Global Financial Crisis).
- Implement schemes to incentivize remitters (example: 2 percent cash back for remitters instituted by Bangladesh).
- Increase market competition among remittance service providers to drive down costs.
Source: Supporting Migrants and Remittances as COVID-19 Rages On, Roland Kangni Kpodar, September 11, 2020.