Who says globalisation is dead? While trade and migration barriers are going up, remittances from the diaspora of low and middle income countries have confounded the sceptics (myself included, if I am honest about my fears at the outset of the Covid pandemic). The latest World Bank report on the subject, published on 12 May, confirms the positive country-level trends we track.
According to the World Bank, remittances:
Declined 2% in 2020 (versus the -7% forecast from October 2020 and the -20% forecast from April 2020);
Should increase 3% in 2021 (versus the -8% forecast from October 2020 and +6% forecast from April 2020); and
Should increase 2% in 2022 (a new forecast).
Why remittances have been better than expected
Remittances partly offset pressure on the balance of payments from a higher bill for commodity imports or shortfalls in tourism and FDI. The drivers of this better-than-expected performance in 2020 are as follows:
Drawdown on savings by migrants;
One-time final repatriation by migrants in the event of job losses and returns home;
Greater use of official channels for remittances (both due to less physical travel and fintech payment innovation);
Access to cash handouts in host countries;
In some cases, idiosyncratic factors such as significant devaluation (eg Mexico), use of savings for the Hajj pilgrimage (eg Pakistan), domestic disasters (Bangladesh floods) and remittance tax incentives (eg in both Bangladesh and Pakistan) – dysfunction in the FX market in Nigeria (where hard currency attracts a premium in the parallel market locally) has had the opposite effect (driven remittances into the informal, undocumented channel).
These idiosyncratic factors partly explain the discrepancy between relatively better performance in LatAm, South Asia and MENA, compared with East Asia or Sub-Saharan Africa.
The greater use of official channels, ex-Nigeria, alone might be regarded as the most recurring of these drivers for remittance growth in 2021 but the post-Covid recovery, albeit a stuttering one, in remittance source countries should drive modest growth overall in 2021.
The table below compares, by region, the latest World Bank forecasts with previous ones from October 2020 and April 2020.
Remittances outweigh FDI for many in EM
The chart below illustrates the economic exposure of the emerging markets we track to remittance inflows.
Remittances: Better than feared so far, September 2020
Tourism in EM a geared play on Pfizer-type vaccines, November 2020