07/13/2021 | Press release | Distributed by Public on 07/13/2021 11:10
Remittance flows are a major source of income for all countries in South Asia, larger than all other capital inflows combined. In 2019, India received more remittances than any other country in dollar terms, and Nepal ranked third in the world in terms of remittances to GDP at 27 percent. Remittances seem to have been even more essential during the COVID-19 pandemic, increasing by 5.2 percent in 2020 in South Asia. But this was somewhat surprising because household surveys globally showed remittances falling, especially in the second quarter of 2020.
So, what happened in South Asia? Many studies indicate that remittances tend to increase when receiving households experience disasters or recessions. However, since the COVID-19 shock was global in nature, both home (recipient) and foreign (sender) countries were impacted. Migrant workers, many of whom- in North America, the EU, and the Middle East- are employed mostly in contact-intensive services sectors were particularly hard hit by COVID-19.
Our analysis in the World Bank's latest South Asia Economic Focus shows that several factors help explain the large increase in remittances in 2020. Some also suggest there are great opportunities for policy interventions.
It's not clear which effect mattered more, let alone whether the increase in remittances is temporary or permanent. Much will depend on post-COVID migration policies in host countries.
But as in other areas of policy, the pandemic has provided an opportunity to better reap the economic benefits of migrant work. For the host countries, migrants are willing to work hard and consistently if provided with reasonable opportunities, raising growth potential in host countries--many of which are facing long-term national labor supply shortfalls amid lower birth rates and aging populations. For many low-income households in the receiving country, remittances are a key stable tool of poverty alleviation.
The pandemic has also accelerated innovation and competition in digital platforms. South Asian governments can work with host countries to expand job-matching sites, establish registries, and sponsor 'fintech' platforms that will further bring down the cost of digital payments. Single-corridor Fintech solutions are giving way to multiple-corridor platforms, which could enable local institutions to access both sender and receiver through digital wallets. A low-hanging fruit for policymakers!