Households, small businesses: Decline in remittances to imply significant hardships: IMF

ISLAMABAD: The decline in remittances for economies such as Pakistan, where remittance inflows represented more than five percent of the GDP, would imply significant hardships for many households and small businesses as their domestic economies are hit by the synchronised nature of the COVID-19 crisis. This has been stated in the latest report of the International Monetary Fund (IMF), "External Sector Report Global Imbalances and the COVID-19 Crisis".

The report stated that for economies where remittance inflows represented more than five percent of the GDP, such as Egypt, Guatemala, Pakistan, the Philippines, and Sri Lanka, the decline would imply significant hardship for many households and small businesses that rely on remittances, as their domestic economies are hit by the synchronised nature of the COVID-19 crisis.

It further stated that remittances are highly vulnerable to the COVID-19 crisis because migrant workers are typically more exposed to the risk of unemployment and wage losses during recessions than are native workers.

Migrant workers also work disproportionately in such sectors as food and hospitality, retail and wholesale, and tourism and transportation, which have taken a hit from the crisis. The decline in remittance inflows in percentage of the GDP is expected to be concentrated among a number of emerging market and developing economies.

The World Bank 2020 forecasts an average 20 percent fall in remittance flows in 2020, based on an empirical model that links remittance inflows to migrants' incomes proxied by the nominal per capita incomes of the migrants' economies of destination.

While uncertainty is high, depending on the pace of economic recovery and risks of a second wave, effects on current account balances may persist, with remittances expected to rebound only partially (by five percent) in 2021.

Copyright Business Recorder, 2020