The money migrant workers send back to their countries of origin, remittances, is a crucial source of income for many developing countries. More than 270 million migrants globally send the money they earn in developed countries back home to their loved ones. International remittances amount to well over $500 billion each year, far exceeding the aid provided to those countries by development agencies and governments. Remittances are considered so critical that during the pandemic, countries declared money transfer an essential service so that customers could continue to send and receive money, despite lockdown restrictions.
Aside from the grave consequences for public health, the pandemic brought the economies of many developed countries to their knees, halting non-essential manufacturing production and closing restaurants and shops. As COVID-19 tightened its grip throughout the world in early 2020, analysts estimated that its impact on remittances would be a 20% drop for the year, convinced that many migrants would simply not have money to send. During an economic shock three times worse than the 2008 financial crisis, how could migrants continue to send money home?
Fortunately for the millions of people in the developing world dependent on remittances for their survival, those predictions did not come true. In fact, the global flow of remittances has held up during the COVID crisis, declining only slightly in 2020 to $540 billion, just 1.6 percent below prior year levels. A variety of factors explain how international migrants defied the experts and continued to support their loved ones at home.
One factor that analysts overlooked was the solidarity of international migrants when a crisis hits home, cutting back on their own consumption or drawing on savings to continue to support their families. “You have families staying at home, brothers and sisters not going to school and they are depending on you to help them” one West African resident told the BBC while the pandemic raged last spring.
International remittances: A tale of two countries
Currency fluctuations are another element that helped dull the impact of COVID on international remittances in some cases. The amount of remittances sent home by Mexican immigrants during the crisis was starkly different from those sent by Salvadorans. Migrants who send money home to the two countries from the United States have similar demographics and educational backgrounds. However, the remittance flows to El Salvador dropped 40 percent in 2020 compared to the previous year while the flows to Mexico increased 35 percent. Why?
Analysts at the FED attribute the difference to the fact that El Salvador’s economy is fully dollarized so the dollar’s rise in value didn’t increase the value of remittances arriving to that country, while the drop in value of the Mexican peso against the dollar created incentive for Mexican migrants to send more money home because they knew their dollars would buy more pesos for their families.
Sharing the umbrella
During the COVID crisis, many developed countries, including the US, EU and the Gulf states introduced measures to support laid-off workers and businesses affected by lockdowns. The Coronavirus relief law passed in the United States, for example, included $300 billion in one-time cash payments to individual taxpayers, loans for small businesses and expanded unemployment benefits. Cash payouts and employment support programs reduced the fall in personal income and helped businesses continue to employ workers. That meant more migrant workers in developed countries had safety nets they could share and the effect helped lessen COVID’s impact on international remittances.
Out with the old: COVID’s effects on how remittances flow
Although informal channels for international remittances were already in decline in recent years, COVID-19 helped highlight the advantages of using safer, more reliable money transfer services for international remittances. Informal channels, which rely on the movement of international travelers to deliver cash to recipients but ultimately expose those funds to the risk of loss or theft, have been largely unavailable during the pandemic due to restrictions on international travel. Ria has been making cross-border transfers safer and easier for more than 30 years. Throughout that time and now, we constantly look for ways to help our customers overcome obstacles and enjoy the peace of mind that comes from knowing their money will arrive safely and almost instantly to its destination.
Now that the world has learned to live with COVID-19, remittance flows to developing countries are forecast to increase by 2.6 percent in 2021, to $553 billion and by 2.2 percent in 2022, to $565 billion. The bonds that tie international migrants to their home countries will remain strong and continue to strengthen even further when crisis hits. At Ria, we understand how critical our services are, especially when times are tough. Transfer money safely, easily and almost instantly with the Ria Money Transfer app, available for download here.
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