Remittances to South Asia Defy World Bank Predictions

By David Francis, Data Partner Manager, Global Data Consortium

In our previous article, we discussed how remittance flows to Latin America continued despite the pandemic. The same is true for South Asia, despite World Bank predictions.

At the start of the pandemic, experts estimated that remittance flows would face the sharpest decline in recent history, largely due to a fall in the wages and employment of migrant workers during an economic crisis in the host country.

The drop was largely anticipated in South Asia, where remittances are a crucial financial lifeline for many vulnerable households. The economic slowdown was predicted to affect remittance outflows from the United States, the United Kingdom, and EU countries to South Asia.

However, remittances proved to be resilient in South Asia.

Inward remittance flows to South Asia rose by about 5.2% in 2020 to $147 billion. The average remittance costs were the lowest in South Asia, at 4.9%.

Among the key drivers for the steady flow of remittances to South Asia in 2020 were migrants’ desire to help their families by sending money home and drawing on savings. Other factors include a fiscal stimulus that resulted in better-than-expected economic conditions in host countries, a shift in flows from cash to digital and from informal to formal channels, and cyclical movements in oil prices and currency exchange rates, according to the World Bank.

In 2020, the top three source countries for remittance outflows in current USD were the United States ($68 billion), the United Arab Emirates ($43 billion) and Saudi Arabia ($35 billion), according to the World Bank. These nations supported and drove the surge of remittance flows to countries such as India, Bangladesh, Pakistan, Nepal, and Sri Lanka.

India

In India, South Asia’s largest recipient country, remittances fell by just 0.2% in 2020, with much of the decline due to a 17% drop in remittances from the United Arab Emirates, which offset resilient flows from the United States and other host countries. India was among the top five recipient countries in 2020 for remittances inflows in current USD at $83 billion, according to the World Bank.

Bangladesh

The World Bank predicted that the total remittances to Bangladesh would fall to $14 billion in 2020, a 20% decline from 2019. Between July and September of 2020, however, Bangladesh registered a record high in remittances amidst the global pandemic, with a 53.5% year-on-year increase in remittances. Analysts suggest the brisk uptick in remittances could be due to Eid-ul-Fitr and Eid-ul-Azha, the two religious festivals eliciting major spending in Bangladesh, being celebrated during the period.

Another reason for the increase in remittance flows was the damage from the floods that inundated more than one-quarter of the country’s landmass, affecting nearly 1 million homes and 4.7 million people, said the World Bank in October. As a result, expatriates sent more money to their families struggling back home.

Pakistan

In Pakistan, remittances rose by 36.5% in July, marking a record high when compared to the same period in previous years, with the biggest growth coming from Saudi Arabia followed by the European Union countries and the United Arab Emirates, according to the World Bank. Additionally, Pakistanis living abroad are sending more money back home through banking channels. The State Bank has made it easier and faster for expats to send back money through banking channels.

For example, Pakistan launched Roshan Digital Accounts, an online banking system to facilitate remittances. Approximately 70,000 Roshan Digital accounts have been opened so far, according to the State Bank of Pakistan, and has already attracted more reliable, long-term deposits of almost half a billion dollars in the last few months.

These inflows have helped stabilize Pakistan’s economy and increased foreign exchange reserves to the highest level in years.

Exchange rates may be a factor, too, according to a new report by Oxford Economics. Pakistan’s rupee depreciated strongly against the US dollar in 2020. Remittances from the Gulf are often made in local currencies, which are pegged to the dollar. This money can therefore be exchanged for more rupees than would have been the case before the pandemic, attracting higher inflows.

Nepal

Figures from the Central Bank for mid-July to mid-September show that Nepalis overseas sent back Rs165.73 billion, an 8.1% increase compared to the same two months of the previous fiscal year. Even in US dollars, this was $1.39 billion – a 2.6% growth. This defied the prediction of sharp drops in remittances due to the pandemic by Nepal’s Central Bureau of Statistics (18%), Asian Development Bank (28.7%) and the World Bank (14%).

Migration experts attribute the growth this year to many factors. Many South Asian migrants are also likely to be employed in essential jobs, such as manufacturing, so could continue working and earning through the pandemic, while others drew on their savings to remit to their families, especially during festivals back home.

With news of the virus spreading in Nepal and complications with repatriation, many workers may now be weighing their options and deciding to stay abroad, said Gunakar Bhatta, spokesperson at Nepal Rastra Bank.

Sri Lanka

Sri Lanka witnessed remittance growth of 5.8% in 2020, according to the World Bank.

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