Thousands of workers have lost their jobs and cannot send money to their families: another consequence of the severe economic crisis caused by COVID-19

Coronavirus causes largest drop in remittances in recent history

photo_camera AP/HUSSEIN MALLA - A man receives a money transfer in Lebanese currency from a Western Union store in Beirut, Lebanon, on Tuesday, January 22, 2019

The coronavirus-induced global recession has already taken its toll on markets and financial flows around the world. Between one and the other are remittances, which are increasingly taking on an important role among the major contributors to the gross domestic product of many emerging countries in recent years.

The virus and the global shutdown of economies is hitting money transfers. Migrants' incomes have plummeted, as many work in industries that have come to a virtual standstill, such as construction or hospitality. In addition, they are often not entitled to health care or to a minimum income from the State. But the method of sending money has also become more complicated, as it used to be done through shops that functioned as foreign exchange agents, and now these establishments are closed.

Una mujer se acerca a un servicio de transferencia de dinero

In addition, many companies that focus on cash transactions, now that most international and regional flights have been suspended, find themselves with huge stacks of bills waiting to be delivered. Similarly, many banks, particularly in the West, are refusing to engage in African remittance business transactions to avoid money laundering.

Big drop in remittances

In April, the World Bank (WB) already predicted that remittances will fall by nearly 20% worldwide this year, which translates into $445 billion, as a result of the economic crisis induced by the COVID-19 pandemic and confinement.

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The plunge in wages and the loss of hundreds of thousands of jobs are the result of one of the harshest and most impactful crises in living memory. In addition, the fall is expected to disproportionately affect emerging economies, which are the main recipients of these inflows and whose citizens depend on them for a basic income.

In 2019, remittances, according to the International Organization for Migration (IOM), reached $551 billion, up from 2018. The United States continues to be the largest emitter with $68 billion, followed by the United Arab Emirates (UAE) and Saudi Arabia. India was the largest recipient, followed by China and Mexico.

Obreros en la construcción de una carretera en Dubai, Emiratos Árabes Unidos

However, despite the decline expected this year, remittances are expected to become a vital source of financing for destination countries. Especially since the WB forecasts that direct foreign investment in low- and middle-income countries will also fall as a result of the crisis. 

Many studies show how remittances are a basic livelihood for many families in low- and middle-income countries, and that they improve nutritional outcomes. Moreover, the money sent by many people to their families in their home countries has served, among other things, to reduce child labour in the most disadvantaged households and to increase investment in education.

Trabajadores agrícolas mexicanos en una granja en Holtville, California

Consequences of the drop in oil prices

Although up to double-digit drops in remittances are expected in all regions this year, the East Asia and Pacific region could see its decline cushioned by the scattering of foreign workers across several countries and different sectors. Many countries in this region, such as Sri Lanka, Thailand, Vietnam or India, receive their remittances from a wide range of countries such as the United States, Europe, and the Persian Gulf countries.

The fall in the price of oil has caused the GDP of countries such as Kuwait, Qatar, Saudi Arabia and the UAE to fall by unprecedented levels. With governments tightening budgets, therefore, there will be less capital to spend and this means a weaker demand for foreign labour, on which the nations of the Gulf Cooperation Council (GCC) are heavily dependent.

As most of the world's largest export markets for remittances are predicted to enter recession this year, the impact is likely to be significant in these emerging markets, as not only will inflows be affected, but many migrant workers will return home due to lack of employment, increasing unemployment figures. 

El primer ministro indio Narendra Modi

For example, hundreds of Indian citizens are already being repatriated from Dubai and Abu Dhabi, in what is estimated to be a total of 225,000 people. Narendra Modi's Government decided to close its borders to areas, including to its own citizens, before quarantining the entire population, and is only now beginning to allow the return of nationals blocked abroad. 

The Gulf countries, at the heart of the problem

The coronavirus pandemic left many immigrant workers in the Gulf countries without work, money and trapped without being able to return to their home countries. The UAE has already informed the workers' countries of origin that they were not allowed to return and said that it was considering imposing quotas on foreign workers in the future, a move that would greatly affect the countries of Southeast Asia, as it is a crucial source of foreign exchange for this region.

Oficina que ofrece servicios de transferencia de dinero

In total, the United Nations estimates that there are some 35 million foreigners working in the six Persian Gulf countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, as well as in Jordan and Lebanon.

It should be remembered at this point that migrant workers are a large part of the GCC economies. Eighty per cent of the UAE's population are foreigners and in Saudi Arabia they make up over a third and about 80 per cent of the labour force.  

In addition, there are a total of 3.4 million Indians in the UAE, most of whom are employed in the construction and hospitality industries, the sectors hardest hit by border closures - which have affected tourism - and, above all, by confinement. Many of these people were already living in precarious situations, with low-wage jobs, working in adverse weather conditions and living in ghettos on the outskirts of large cities. But COVID-19 has posed a new danger, especially when it comes to implementing minimum hygiene rules and advisable social distancing.

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In Bahrain and Qatar, hundreds of workers were placed in quarantine after coronavirus infections were detected, while Riyadh also warned of the risk of COVID-19 spreading through distancing workers.

As the economy has come to a standstill, attention has turned to the aid that large institutions will provide to revive economies. Stimulus packages, fixed income markets and moves to establish sustainable prices for currencies and commodities have focused all efforts. Similarly, the IMF has stated that it is ready to deploy its rapid response strategy, which consists of debt relief for loans by facilitating financing.

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