A global drop in remittances caused by the Covid-19 pandemic could threaten the economic recovery of developing countries, including Pakistan, by adding pressure to their balance of payments and weak currencies, according to the Economist Intelligence Unit (EIU).
Countries with structural external imbalances that rely heavily on remittances are at greatest risk, the EIU said in its Covid-19 and Migrant Remittances – a Hidden Crisis Looming report. This includes countries such as Pakistan, Kyrgyzstan, Nepal and Tajikistan, where remittances accounted for at least 40 percent of current account credits even before the outbreak of the pandemic, it added.
“For poor countries, a significant drop in remittances represents bad news on top of an already challenging economic and social situation,” the EIU said. In October, the World Bank said global remittances would fall 14 percent by 2021 compared with pre-Covid-19 levels in 2019.
The Washington-based lender projected global remittances would decline 7 percent to $508 billion in 2020 and 7.5 percent to $470bn in 2021. Remittances fell about 5 percent following the 2008 global financial crisis.
Weak economic growth and employment levels in migrant-hosting countries, lower oil prices last year and depreciation of currencies of remittance-source countries against the US dollar, underpin the decline in money sent back home, the World Bank said at the time. The expected decline of remittances in 2021 will present significant challenges for developing countries, particularly if their reliance on remittances grows in the immediate term, the EIU said.