The Impact of the COVID-19 Pandemic: The Case of Remittance Recipient Countries

Abstract

The advent of the new coronavirus hinders the fragile welfare of migrant workers. Those economic sectors with a large migrant workforce appear to be those hit hardest during the lockdown, resulting in surge in migrant unemployment and a plunge in the volume of remittances. This has become yet another factor putting pressure on the gross domestic product (GDP) growth, balance of payments, and budgets of countries that are net remittance recipients, while also triggering rising poverty levels. This paper evaluates the impact of the current pandemic (and respective economic downturn) on remittance inflows to recipient countries and tackles the potential contribution that international financial institutions could make to alleviate the adverse economic aftermath. In Central Asia and Southern Caucuses (except Azerbaijan) emergency financing granted by the International Monetary Fund (IMF) and the World Bank covers 9–20% of the overall size of the annual remittances received. This financial support could be rendered insufficient due to the sharp decrease in the volume of remittances, decline in tourism revenue, and weakening economic activity, while the poor quality of state institutions may hinder the efficient distribution of accumulated resources. In Europe, the IMF and the World Bank provided approximately $7.7 billion in financing to low- and middle-income countries for such purposes as economic stabilization, support for population welfare, and financing of internal/external deficit, of which $5 billion is represented by the new Ukraine-IMF Stand-By Agreement. With the exception of Ukraine, Macedonia, and Bulgaria (the latter having received no loans/grants so far), the cover index for European remittance-recipients stands within a range of 2–18% over 2019 remittance inflows.Therefore, it is most feasible that the current 2020 GDP growth forecasts made by the IMF, the World Bank, and local governments are inaccurate in the light of the insufficient financial support provided by international financial organizations. Additional pressure on the GDP figures might stem from further extension and/or toughening of the lockdown period, as well as from uncertainty regarding the revival of regular business activity and the timeline for resuming migrant remittances.