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Remittances from the GCC states and the rest of the world will drop sharply this year, raising the credit risk in recipient countries that are most dependent on cash inflows, according to a new analysis.
The recipient economies that will be hit hardest by the fall in cash inflows from major labour markets will be the low- and middle-income economies, ratings agency Moody’s Investors Service said in its latest report.
The World Bank had earlier forecast that global remittance inflows, which reached an all-time high of $554 billion in 2019, will drop by approximately 20 percent this year due to the financial fallout of the coronavirus pandemic.
The sharpest fall will be recorded in Europe and Central Asia (27.5 percent), followed by Sub-Saharan Africa (23.1 percent), South Asia (22.1 percent), North Africa and Middle East (19.6 percent), Latin America and the Caribbean (19.3 percent) and East Asia and the Pacific (13 percent).
At around $110 billion, the projected decline in money transfers far exceeds the $16.2 billion fall that was recorded in 2009 following the global financial crisis, according to Moody’s.
Remittances serve as a major lifeline for many dependent families in developed economies worldwide. For a lot of the beneficiaries, the money sent by their family members working abroad are the only source of their daily subsistence.
Negative impact
The decline will be bad for the economies that have long been dependent on remittances, as it not only diminishes the financial support of dependent families, it also weakens the countries’ credit profiles. And the impact will only worsen the slowdown already being experienced in these countries.
“By affecting household income and consumption, along with current account receipts, a sharp drop in remittances weakens credit profiles through its impact on economic strength and external vulnerability,” said Christian de Guzman, Moody’s senior vice president.
“While the impact on incomes and economic strength is likely to be more gradual, the hit to current account receipts and weakening of external positions can be abrupt,” he added.
UAE remittances
The UAE and the rest of the GCC region, which is heavily dependent on foreign workers, are among the biggest sources of remittances for many of the developing economies.
From January to March this year alone, outbound remittances from the UAE reached more than 41 billion UAE dirhams, with the bulk of the funds landing in the bank accounts and pockets of beneficiaries in India (37.8 percent), Pakistan (11.4 percent) and the Philippines (7 percent), according to the UAE Central Bank.
Moody’s noted that the GCC states are among the 25 countries in 2018 that provided nearly 85 percent of global migrant remittance outflows. However, these source countries, including the United States, Germany, China, France and Russia, are expected to experience a sharp slowdown this year.
“The sharp deterioration in global economic conditions has already led to significant damage to the labour markets of these source countries…Migrant workers are especially vulnerable during the downturn, as they typically lack the social protections afforded to resident workers, such as unemployment insurance,” Moody’s added.
As of 2010, the UAE is home to an estimated 8.3 million people, with expatriates comprising about 90 percent of the total population. Analysts have forecast that the country’s population will shrink this year due to massive job losses in various companies across the country.
Oxford Economics estimated that some 900,000 people in the UAE, and another 1.7 million in Saudi Arabia, could lose their jobs this year due to the pandemic. With most of the affected workers being expatriates, whose residencies are tied to their work visas, the UAE could see its population shrink by 10 percent.
“Migrant workers [in remittance-sending countries] may be disproportionately affected by job losses or wage cuts, with consequently large spillovers to remittance outflows,” noted Moody’s.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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