WB Predicts Sharp Decline in Remittances in 2020

2:22:01 PM | 4/28/2020

Vietnam was the third largest recipient of remittances in East Asia and the Pacific in 2019.  Vietnamese workers living abroad sent home US$17 billion in the year, accounting for 6.5% of the country’s GDP, showing that remittances were still important for the country. However, in 2020, remittances are forecast to decline sharply due to the economic crisis caused by Covid-19 pandemic and lockdown.

According to the recent Migration and Remittances Data released by the World Bank, Vietnam is among the top 10 recipients of remittances in the world for three consecutive years. Ho Chi Minh City received the highest amount of remittances in the country, estimated at US$5.6 billion in 2019. The WB estimated that remittances to Vietnam increased 10-15% annually on average in the past 12 years.

This amount came from more than 4.5 million Vietnamese people working and living abroad. According to the latest data released in 2012 by the State Committee on Overseas Vietnamese, more than 4.5 million Vietnamese live, work and study in 103 countries and territories in the world.

The International Organization for Migration (IOM) estimated that, in 1990-2015, more than 2.5 million Vietnamese migrated abroad and nearly 100,000 went abroad a year on average. The International Labor Organization (ILO) also noted that 540,000 Vietnamese workers lived and worked abroad in 2019. In 2019 alone, more than 141,000 Vietnamese went to work abroad.

According to the WB, global remittances are projected to decline sharply, by 20%, in 2020 due to the economic crisis induced by the Covid-19 pandemic and shutdown. The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country. Remittances to low and middle-income countries are projected to fall by 19.7% to US$445 billion, representing a loss of a crucial financing lifeline for many vulnerable households.

Studies show that remittances alleviate poverty in lower- and middle-income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labor in disadvantaged households. A fall in remittances affect families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs.

Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5%), followed by Sub-Saharan Africa (23.1%), South Asia (22.1%), the Middle East and North Africa (19.6%), Latin America and the Caribbean (19.3%), and East Asia and the Pacific (13%).

The large decline in remittances flows in 2020 comes after remittances to low and middle-income countries reached a record US$554 billion in 2019. With the decline, remittance flows are expected to become even more important as a source of external financing for low and middle-income countries, as the fall in foreign direct investment (FDI) is expected to be larger (more than 35%). In 2019, remittance flows to low and middle-income countries became larger than FDI, an important milestone for monitoring resource flows to developing countries.

The World Bank estimates that in 2021, remittances to low and middle-income countries will recover and rise by 5.6% to US$470 billion. The outlook for remittance remains as uncertain as the impact of Covid-19 on the outlook for global growth and on the measures to restrain the spread of the disease. In the past, remittances have been counter-cyclical, where workers send more money home in times of crisis and hardship back home. This time, however, the pandemic has affected all countries, creating additional uncertainties.

According to Mr. Michal Rutkowski, Global Director of the Social Protection and Jobs Global Practice at the World Bank, effective social protection systems are crucial to safeguarding the poor and vulnerable during this crisis in both developing countries as well as advanced countries. In host countries, social protection interventions should also support migrant populations.

The global average cost of sending US$200 remains high, at 6.8% in the first quarter of 2020, only slightly below the previous year. Sub-Saharan Africa continued to have the highest average cost, at about 9%, yet intra-regional migrants in Sub-Saharan Africa comprise over two-thirds of all international migration from the region.

By Quynh Chi, Vietnam Business Forum