By Charles Ike-Okoh
THUR, 12 NOV, 2020-theGBJournal- The latest EFG HERMES note shows that remittances displayed very similar trends across the board in data for countries in their coverage, namely sharp contractions in March-May – at the peak of the lockdowns – followed by a sharp recovery in the ensuing months.
The interim data on remittances seen by theGBJournal shows surprising resilience in the months following the outbreak of COVID-19, coming in above EFG Hermes Research and the World Bank’s expectations of a decline of 10-15% in 2020.
Contrary to those expectations, data for five countries in their coverage shows that remittances actually grew 9% Y-o-Y on average over March to September this year. Post sharp drops in March-May in most cases, when lockdowns reached their peak, remittances rebounded strongly in the following months growing on average by a staggering 27% Y-o-Y.
Nigeria was the exception where remittances collapsed in Q22020 Y-o-Y-(Nigeria only reports remittance numbers on a quarterly basis). Remittances were recorded at $3.3 billion during the quarter, a fall from the average $5.8 billion per quarter.
Pakistan, Bangladesh, and Sri Lanka saw record levels of remittances during the summer. Interestingly, according to EFG HERMES, all the major sources of remittances showed strong growth, including the GCC, the U.S., the UK, and to a lesser extent Europe.
This strong showing of remittances comes amidst a marked deterioration in the job markets across the globe as a result of the outbreak of COVID-19. This is particularly the case in key remittance-exporting markets: the US, the UK, Europe and the GCC. In the first months of the outbreak, unemployment peaked to record highs in advanced economies.
In the GCC, economies faced the double whammy of low oil prices and restrictive measures due to the pandemic. Indeed, employment indicators point to a sharp rise in job losses in most GCC countries, with the UAE recording the most severe loss of jobs in at least more than a decade. In parallel, some governments in the region responded to emerging economic challenges with job nationalisation policies, which are further weighing on the expat workforce.
But what is behind the strong resilience?
‘’One thing we know for sure, from talking to different central banks, is that the numbers are inflated by the fact that some sizable flows – which previously went through unofficial channels – are now recognised in reported data as they are passing through official channels largely due to movement restrictions,’’ EFG Hermes Research said.
‘’Another point to consider, for which there is supportive evidence, is that large transfers are partially a reflection of expat workers coming back home for good, hence transferring larger sums of money. What remains unclear though is to what extent each factor contributes to the resilience we have seen nearly across the board so far. We also think that restrictions on movement, which remain in some countries or was only properly lifted in Jul/Aug for others, has increased uncertainty.’’
In April this year, the World Bank estimated remittance flows to Sub-Saharan region to decline by 23.1 percent to reach $37 billion in 2020, while a recovery of 4 percent is expected in 2021.
The projections leaned on the impact of the pandemic on migrant workers, among the most directly impacted workforce. IFAD estimates, of the 250 million international migrants, approximately 200 million leave home to work and send remittances home to their families.
Meanwhile, EFG HERMES said they remain wary of falling remittances next year in their outlook, suggesting that the marked rate of job losses reported by many of the remittance-exporting countries cannot be ignored.
‘’ Normalisation of labour markets to pre-COVID-19 levels is likely to take years, in our view, hence we continue to expect remittances will suffer as a result. The degree of the expected drop remains hard to predict considering the uncertainties around the pandemic’s second wave and normalisation of flows as restrictions are removed.’’
EFG HERMES sees Egypt, Bangladesh, and Sri Lanka as the most negatively impacted within their coverage of any potential drop in remittances next year.
‘’The pain will be even more severe in the case of Jordan and Lebanon,’’ the financial Services company said in their FEM Economic note.
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