Lifelines in Danger by Antoinette Sayeh and Ralph Chami published by IMF (6/2020).
“The COVID-19 pandemic threatens to dry up a vital source of income for poor and fragi
The COVID-19 pandemic 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—money sent home by migrant and guest workers employed in foreign countries.
Remittance flows into low-income and fragile states represent a lifeline that supports households as well as 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 (see Chart 1). 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 drying up calls for an all-hands-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 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…”
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