Remittance resurgence a tonic but no cure for sickly emerging economies
22/12/2020 24:00
* Latin America, Pakistan, Kenya seeing transfer surge
* Helps soften Covid blow on government finances
* Globally remittance flows expected to fall 7% -World Bank
* Remittances set for further decline in 2021
* Job losses, returning migrants add to uncertainty
By Tom Arnold
LONDON, Dec 22 (Reuters) - Larger-than-expected money
transfers from migrants overseas have provided a tonic for
several sickly economies during the coronavirus crisis, but the
outlook for such flows remains fraught with uncertainty even as
vaccines are rolled out.
Mexico, El Salvador, Kenya, Pakistan, Bangladesh,
Philippines and Sri Lanka are among those enjoying resurgent
flows in recent months, helping them narrow current account
gaps, stabilise currencies and meet any overseas debt payments.
Such 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.
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 in person, while
benefiting from access to state support, including cash
handouts, in host countries such as the United States.
While vaccinations should help economic activity to return
to normal, the risk of mounting job losses as government support
unwinds mean such flows, a source of FX revenue and gross
domestic product for many emerging countries, may falter in
2021.
Unemployment in wealthy G20 countries, home to a sizeable
proportion of migrants, is expected to reach 10% by the end of
2020 and remain above levels at the end of 2019 next year, the
OECD has forecast.
"Countries like Pakistan, Bangladesh and Philippines, which
receive about 9% or 10% 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," said Emre Akcakmak, portfolio
manager at East Capital, a specialist in emerging and frontier
markets.
Record flows to Pakistan have helped it accumulate a $1.2
billion current account surplus at a time when it is paying back
a $3 billion loan to Saudi Arabia. urn:newsml:reuters.com:*:nL8N2IW3N2
Strong remittances and subdued imports should help Sri Lanka
to service its July Eurobond maturity, said Tellimer economist
Patrick Curran. Beset with surging debt and collapsing tourism
revenues, the island nation has been assessed at growing risk of
default by rating agencies. urn:newsml:reuters.com:*:nL4N2IR1YG
Mexico's currency depreciation has helped put the country on
course for its largest current account surplus in more than 30
years, Goldman Sachs estimates. urn:newsml:reuters.com:*:nL1N2HP1NQ
DEEPER, PROLONGED
Remittances are relatively stable compared with other
financial flows. That includes foreign direct investment, which
remittances overtook in 2019. Meanwhile portfolio flows, set to
surge in the last quarter of 2020 to their highest since the
first quarter of 2013, are prone to sharp reversals as they did
during the taper tantrum.
But the outlook is uncertain.
The World Bank in October revised its 2020 estimated drop in
flows to low- and middle-income countries to 7% from 19.7%
previously, but predicted a further 7.5% dip next year. That is
a deeper and longer downturn than during the global financial
crisis, when flows shrank 4.9% in 2009, before rebounding 11.8%
a year later. urn:newsml:reuters.com:*:nL8N2HK7W4 urn:newsml:reuters.com:*:nL8N2C93IA
For the first time in recent history, the stock of
international migrants is expected to fall in 2020. Those
remaining in host countries face an uncertain future.
In the United States, in a reversal of pre-pandemic trends,
the unemployment rate for immigrants was now 2 percentage points
higher than the rate for natives, according to the OECD.
"We are expecting a strong recovery in global growth as
vaccination is rolled out and we begin to see a normalisation in
economic activity. This should support global remittances," said
Farouk Soussa, senior economist at Goldman Sachs.
"On the other hand, we think there have been a number of
one-off factors that have held up remittances this year, and
these may not come into play next year."
The Gulf, accounting for around 40% of total outward
remittances, may see a push to replace foreign workers with
locals in 2021, Soussa said.
That be bad news for countries that rely on transfers from
the Gulf, such as Bangladesh, Philippines, Egypt and Lebanon.
Lebanon's financial crisis and dwindling economy mean
remittances are seen rising to more than a third of GDP in 2020.
One hope is a recovery in exports and tourism, the other big
money maker and hard currency source for emerging economies. Yet
while the vaccine rollout should help, the outlook is uncertain.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Remittances as a share of GDP in 2019 (%) IMAGE https://reut.rs/2VoNwWQ
Remittances expected to dip again in 2021 https://tmsnrt.rs/3avullN
Current account balances as a percentage of GDP https://tmsnrt.rs/38lIIqp
Remittances rebound https://tmsnrt.rs/3rf4fJZ
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
((Tom.Arnold@thomsonreuters.com; +442075428510; Reuters
Messaging: tom.arnold.thomsonreuters.com@reuters.net))