COVID-19: The decline of global remittances puts rural families at risk
09 June 2020
The economic impact of the COVID-19 pandemic has led to the loss of millions of jobs in the developed and developing world. Migrant workers are among the most directly affected. They work in economic sectors adversely impacted by the economic slowdown such as construction, the hospitality industry, tourism, food, agribusinesses, transport and domestic work. This loss of income has ripple effects across the world, putting millions of poor rural families at risk.
The majority of migrant workers are from low and middle-income countries who need to support their families through the remittances they send home on a regular basis. It is estimated that the world’s 200 million migrant workers send money regularly to 800 million family members to help them access food, health and education. Therefore, one in nine people in the world are directly impacted by remittance flows.
In 2019, remittances to low and middle-income countries totalled US$554 billion, with about half reaching families living in small towns and rural villages. However as a result of COVID-19, these flows are projected to make their sharpest decline in history, falling by 20 per cent in 2020 to US$445 billion, as indicated by a recent World Bank forecast.
Although in the past remittances have been relatively resilient to external shocks, COVID-19 is different. It impacts senders and recipients simultaneously. Families living in rural areas in developing countries have been severely affected by lockdowns and social distancing. Markets have closed and transport has been disrupted. Small-scale farmers have been unable to sell their produce or to buy inputs, such as seeds or fertilizer. Daily labourers, small businesses and informal workers, who are often women and young people, are among the worst affected.
The UN’s International Fund for Agricultural Development (IFAD) is tracking the impact of declining remittances on the ‘receiving end’ in developing countries, where typical remittances of $200 to $300 per month on average account for 60 per cent of household income. While the reduction in remittances will not fall evenly across countries and communities, the impact is likely be substantial in rural areas where remittances count the most.
Initial indications from countries that rely heavily on remittances are deeply concerning. Reports ranging from Senegal, Kenya, El Salvador and Nepal to the Philippines and Eastern Europe confirm not only the significant drop in remittances but also the return home of hundreds of thousands of jobless migrant workers to their strained households and communities in rural areas.
The sudden reduction or outright halt in remittance flows could also impact food production in the coming months with the planting season starting in different regions. In Mali, for example, many families in rural areas often cannot buy seeds and inputs for the next agricultural season without regular remittances.
Remittance families and food security: Opportunities for effective action
The economic consequences of the COVID-19 pandemic could push rural families even deeper into poverty and threaten global prosperity and stability. We need to act now to minimize the impact of the drop in remittances on the food security of rural families. If we take immediate action, we can provide rural people with the means to ensure a faster recovery. Several “win-win” opportunities present themselves:
- Fast-track innovative business solutions that support remittance families in times of crisis, by promoting fee reductions and by developing products to enable migrant workers to transfer non-financial products through remittance service providers, such as food or medicine, directly to their families.
- Identify and support income-generating opportunities for the “human capital” of returning workers. Migrants bring home experience, education and new skills. Migrants are risk takers, resilient and entrepreneurial. This crisis calls for creative ways to use their talents as part of the response back home.
- Encourage financial inclusion among remittance families by promoting the creation and adoption of emergency savings products.
- Promote the use of digital channels for sending and receiving remittances, and disseminate information about available remittance products and ways to obtain them. By expanding rural access to digital technology, remittances could support rural transformation, bringing new jobs and opportunities back home. Receiving remittances digitally could give rural dwellers access to savings, credit or insurance products can build much needed resilience at family level and benefit the communities around them.
To address a number of the challenges facing rural communities, IFAD is currently leading the UN-sponsored Remittances Community Task Force, a group of 35 stakeholders of different sectors, which will soon issue a series of comprehensive and integrated recommendations: A Blueprint for Action.
Taking the specific concrete actions outlined in the blueprint will improve legal and regulatory frameworks, facilitate private sector solutions and incorporate the active involvement of NGOs, particularly diaspora groups. This will empower remittance families, even during this unprecedented crisis, to maximize the potential development impact of remittances for themselves and the communities where they live, so that future generations might view migration as a choice rather than as a necessity.
Pedro de Vasconcelos is the head of the Financing Facility for Remittances at the UN’s International Fund for Agricultural Development (IFAD).