On the latest edition of Expert Answers, World Bank Lead Economist for Migration and Remittances Dilip Ratha shares his latest research on these “lifeline” financial flows – the money that migrants send back to family and friends in their home countries. He tells host Paul Blake about the role that these transfers are playing in the COVID-19 response and recovery, and why they did not decline nearly as much as many feared during the pandemic.
Timestamps
00:00 Introducing Dilip Ratha, World Bank Lead Economist for Migration and Remittances
01:00 The role of remittances in the COVID-19 response around the world
02:11 How COVID-19 has impacted remittance payments?
04:28 What role did government policy play in propping-up remittance flows?
05:30 How could the path of the pandemic affect the trajectory of remittances?
07:02 Shift from informal to formal channels of money transfer
09:36 Thanks Dilip Ratha for sharing your expertise!
Transcript
00:00 [Expert] It is not just a big flow that helps big countries or small countries. It actually is a flow that serves as a financial lifeline to many households.
[Host] This time on Expert Answers, we've got the latest figures on remittances. Now you'll remember that these are those vital flows that migrants send back to their home countries to their friends and their family, and they were predicted to fall dramatically during the pandemic. So how did they fare? I recently caught up with the World Bank's Dilip Ratha to get the latest figures, and hear what role remittances play in the COVID-19 response and recovery.
01:00 [Host] Well Dilip, welcome back to Expert Answers. I know you have a new report out, you have some new research that you're gonna share with us, but before we get into that, in the past, we've talked about the important role that remittances play in international development, eclipsing FDI and overseas aid. Talk to me a little bit about the role, just kind of broadly, that remittances play in the COVID-19 response and recovery.
[Expert] Thank you, Paul. It's nice to be back. Remittances were truly helping a lot of poor people get out of poverty buy basic necessities like food, and pay for hospitals and children's education. And during the COVID crisis, of course, the need for such a help was even stronger. This is an important point to emphasize that if there is a natural disaster, if there is a financial crisis, if there is an earthquake or a hurricane, including the one in Honduras last year, or if there is a pandemic like the COVID-19, before any other kind of form of help, it is the family members themselves that help out and the neighbors and friends who help out. In this case, the family members who are abroad, the migrants, it is not just a big flow that helps big countries or small countries, it actually is a flow that serves as a financial lifeline to many households.
02:11 [Host] We were predicting that remittances were gonna fall somewhere between 14 and 20%. You have some new figures out showing a much more positive picture. Can you tell us a little bit about what you're finding here in this latest report?
[Expert] So we were expecting last year that remittance flows would fall by about 20%. And then later on, we revised that up to say that no actually there'll be a fall of about 7% in 2020. Now, with data in hand, in 2020, latest data shows that remittances held up very well to $540 billion, a fall of only $8 billion, that's a fall of 1.6% only. And going forward, there is an expectation that they would increase by about 2.6%, a little more than 2% in the next years. So in the second quarter, last year, and definitely in the month of April, everything came to a standstill. And if even people couldn't send money home, even if they had the money, because money transfer operators were not there and there were travel bans and there were social distancing requirements. People just couldn't go out to send money. That changed significantly in the months afterwards. So June, July, August, so third quarter, and definitely the fourth quarter of last year, flows of remittances to poor countries recovered significantly. And the surprise element to us was that the world was more prepared for remote work and to send money through mobile money, mobile phones, internet-based money, digital money. The world was more prepared for digital solutions to what in the beginning was a tangible thing of having to go to a store and then send money. So that was one big surprise. The second big surprise was the counter cyclical policies, the fiscal support policies, stimulus policies, employment support policies that many of the large host countries put in place and the size of those fiscal stimulus packages. And that propped up– Explain that to us.
04:28 [Host] What are the role of these policies and what are some of these policies? What role were they playing in sort of propping up the remittance flows?
[Expert] You know, about 25%, about a quarter of the migrants worldwide are in this country alone, in the United States. When the United States comes up with a cash transfer program or a fiscal stimulus program of several trillion dollars, that actually affects the economy. It props up the economic activity levels and I'm not only pointing to United States, it's just an example. Such policies were put in place all over the world, including in countries like India, where World Bank has actually helped with billions of dollars of financing. So, with employment not falling as much, as we were expecting, migrants were able to send more money home because at the same time that they were experiencing difficulties here, the family back home was experiencing even more difficulty. And there was more of a need to send money home.
05:30 [Host] We've seen the devastating impact of the virus in India, here in the past few days and weeks. We've seen it in, you know, different countries around the world. Looking ahead, what are some of the downside risks that you see in the pandemic and how it's yet to play out?
[Expert] COVID-19 recurrence is a major downside risk. Also, we talked about the fiscal stimulus packages, you know, one time doing trillion dollar, I don't mean only US, but globally, trillions of dollars of fiscal stimulus was possible one time. Would that be possible again and again? That is not clear. So that remains a second big risk. And the third big risk is the effect on employment of foreign born workers. So, one reason we were so, so worried about remittance flows last year during the crisis, the peak of the crisis, was that when there is a crisis, employment is, employment levels are affected, especially for people in the informal sector, but, employment levels of foreign born workers, foreign workers is affected even more. And on top of that, what we have seen now, there is anecdotal evidence, and one survey, Eurobarometer survey that was carried out in July last year, pointing to rising anti-immigration sentiment in many parts of the world.
07:02 [Host] Just as we start to wind down here, another interesting trend, kind of shift in the dynamics of the remittance transfer market is from informal, you know, passing cash hand to hand, to more formal channels. Can you talk to us a little bit about why that's happening, what the effect is, and whether you think that trend will continue beyond the COVID-19 crisis?
[Expert] With travel bans imposed, the number of people who could come through the border carrying cash for themselves and for others, that also stopped. So, that meant also a switch from hand carry to sending money through a banking system. Even if you give it to a friend to send money, that person is probably using the banking channel somewhere. An interesting observation there is that to be able to send money using mobile channels or digital channels, one needs a bank account. I think there is now an urgency to begin to see what factors inhibit access to bank accounts for people as well as for money transfer companies, and what can regulations do to facilitate that process? Improving the developmental impacts of these flows, there will be products that are linked to remittances. For example, consumer loans, saving products, insurance products, health insurance in particular, I think is going to get a boost because of the crisis and the solutions that are coming up now in response to the crisis. And then there is a big picture story of how diaspora resources can help by let's say, enabling countries to raise billions of dollars of bond financing through diaspora bonds, by using remittances as collateral for bond issuances, or simply, recognizing that remittances are counter cyclical, they don't fall so much during crisis, and they are very, very large, larger than any export item. Let's say in Egypt, they're larger than seven times this revenue from the Suez Canal, that kind of recognition by rating agencies means that sovereign ratings of countries will improve, which will then translate into improved ratings and lower borrowing costs for a large number of borrowers. So in general, the total, the whole global remittances agenda is going to become more robust and it will develop in many fronts, better data, better financial products, and access to financial inclusion, [audio error] and better access to capital markets for countries.
09:36 [Host] Well Dilip, it was great to catch up. It's always fascinating to hear from you. Thank you so much for being here this morning.
[Expert] Thank you, it's a pleasure.
[Host] A huge thanks to Dilip Ratha for taking the time to share his knowledge with us. The actual report has tons of detail in it and you can find out how your region or country fared. Head on over to worldbank.org and find it there. If you wanna reach me or the rest of the team, it's easy, expertanswers@worldbank.org. Until next time, goodbye.
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