Menu close

Dramatic drop in money transfers by migrants threatens developing countries

As a result of the lockdown and quarantine, migrants will send 20 percent less money home to families in developing countries, according to World Bank estimates. Given the lifeline that these transactions provide for many poor families, this is set to send economic shock waves through those countries.

11. May 2020
4 min

Paying for the Corona crisis aside, the world's developing countries are also facing the prospect of a sharp economic dip as a result of the lockdown and quarantine making it harder for migrants to send money home to their families from (in particular) Europe, the USA, Russia and the Gulf states.

With immigrants typically working in the service industry and construction sector, which were among the first sectors to shut down, a record drop of DKK 750 billion in such money transfers can now be expected for 2020, according to a World Bank report.

This equates to an unprecedented decrease of 20 percent – unprecedented because even after the 2008 financial crisis, the equivalent figure was a mere five percent; the situation is attributable to the fact that the majority of migrants see it as a basic duty to send money home, regardless of circumstances.

Economic lifeline

The absence of this money is set to have major repercussions, both for the families affected and at a macroeconomic level.

"Money transfers by migrants provide an economic lifeline in many countries. A reduction of money transfers can increase poverty and reduce households' access to essential healthcare services," says Dilip Ratha, Head of the World Bank's 'global knowledge partnership on migration and development'.  

The impact is even greater given that authorities in (for example) India have introduced even more stringent quarantines than the West, meaning that families back home have, if possible, even less opportunity to work than the migrant working abroad.

A third of GDP

With an estimated 270 million migrants working outside of their countries according to World Bank figures, the reduction in money transfers is no mere drop in the ocean in terms of economic significance. It takes on even more significance when you consider that each migrant, as a rule of thumb, is feeding three people in their country of origin.

As reported by 'Nyhedsbrevet Finans', 2019 was the first year in which transfers by migrants constituted the largest external source of finance in developing countries.

In countries such as Haiti, Nepal and South Sudan, for example, money transfers from family abroad make up 37 percent, 34 percent and 27 percent of the Gross Domestic Product (GDP) respectively.

"In five years' time, it is likely that money transfers will be greater in value than development assistance and direct foreign investments combined," said Dilip Ratha, predicting that the figure could reach a dizzying DKK 7 billion "in the foreseeable future".

Transfer agencies closed

The drop in migrant income aside, the World Bank has also commented that part of the reason why money transfers have nosedived is likely because money transfer agency branches have been forced to close, just as bank branches have.

The typical immigrant in the West goes down to their local branch of (for example) Western Union or Money Gram and hands over a bundle of banknotes when sending money home to his wife or nephew in Africa.

"Poorer and/or unregistered migrants often do not have access to online services", says Ratha, who takes the view that transfer agencies should be given 'essential service' status, which would allow their branches to remain open.

Copenhagen-based Dan-Exchange, for example, which provides money transfer and currency exchange services, is keeping five of its seven branches closed.

Deporting migrants

Despite the gloomy forecasts, the World Bank does, however, believe that money transfers will begin to increase again in 2021, rising by five percent as the flexible migrants return to their places of work as soon as they have the option to do so. All of this is, however, subject to economic developments and will depend on the economic policy pursued by the host country.

Whereas Europe and the USA and many Asian countries have injected money into their economies in the form of wage subsidies and cheap business loans, it is expected that Gulf states such as Saudi Arabia and the United Arab Emirates will tighten their belts in response to oil prices nosediving. For the thousands of migrants already deported from Saudi Arabia and Qatar, the consequences of this situation are already being felt.

Latest news