ADB forecasts 22% drop in worker remittances

• SL’s share of worker remittances could fall to US $ 5.5bn this year, from US $ 7.01bn in 2019
• Global remittances are expected to decline by US $ 108.6bn in 2020
• Over a million migrants expected to fly  back to their home countries from Middle East
• SL has around 50,000 migrant workers stranded particularly in Middle East 
• According to IPS study, 8.76% of Lankan households considered as remittance-receiving households

By Nishel Fernando
The Asian Development Bank (ADB) forecasts a 21.9 percent drop in worker remittance inflows to Sri Lanka this year, under the worst-case scenario, driving many remittance recipient households into poverty. 

According to the latest ADB publication that discusses the COVID-19 impact on international migration, remittances and recipient households in developing Asia, Sri Lanka’s share of worker remittances could fall to US $ 5.5 billion this year, compared to US $ 7.01 billion in 2019, assuming that the source countries would take a year to get their domestic outbreaks under control and bring economic activities back to normalcy.

Meanwhile, the global remittances are expected to decline by US $ 108.6 billion in 2020, equivalent to 18.3 percent of the baseline remittances globally, under the same scenario, with remittance receipts in Asia falling by US $ 54.3 billion, equivalent to 19.8 percent of the baseline remittances in 2019.

The report noted that this scenario is becoming increasingly likely with most migrant destinations still struggling to contain the spread of the coronavirus.

“It is likely that it will take more time before borders reopen to foreign workers, even if the domestic outbreaks in host economies are contained. Moreover, even if border restrictions are lifted, it is more likely that jobs will be offered first to residents and citizens of the host countries, rather than to guest workers,” the report noted.

According to the ILO, working hours are thought to have declined 13.2 percent in the Arab states in the second quarter, as the negative impacts of the pandemic materialise on jobs. 

Further, ADB highlighted that over a million migrants are expected to fly back to their source countries from the Middle East, especially when travel restrictions are eased.

According to the government, there are around 50,000 Sri Lankan migrant workers stranded particularly in the Middle East, awaiting repatriation. 

Meanwhile, remittance inflows to Sri Lanka rebounded, starting from May, after plunging 32 percent in April.

Notably, in June, the remittance inflows recorded a 6.7 percent YoY growth to US $ 572.5 million, reaching pre-pandemic levels. 

However, ADB noted that a relative increase in the first remittance inflows was observed in June in several countries, which could be due to several developments. 

“This can be attributed to the lifting of lockdowns in destinations that allowed migrants to remit over the counter and the introduction of policy measures that incentivise transfer by reducing restrictions and transaction fees,” it added. 

ADB opined that the measures introduced by the Sri Lankan government in exempting inward remittances from the exchange control regulations and taxes as well as giving protection under banking secrecy provisions would increase remittance inflows to the country while benefiting the recipient households.

“A similar measure was introduced in Pakistan, which has contributed to a surge in remittance inflow for the first half of the year,” it noted. 

According to the Institute of Policy Studies (IPS), 8.76 percent of the country’s households were considered as remittance-receiving households.

With the shortfall of remittance inflows, ADB cautioned that many households are in danger of falling into poverty. 

“Without continuous remittance flows, the remittance-dependent households can fall into poverty or have difficulty meeting the basic essential needs as well as access education and health services. Loan repayment is another challenge for remittance-recipient households,” the report pointed out.

The anticipated slowdown in remittance inflows is also expected to overshadow the country’s performance in key economic indicators this year. 

A study based on micro data from selected economies in South Asia and Southeast Asia showed that a 10 percent increase in remittance inflows leads to a 3-4 percent rise in real GDP per capita. 

Hence, vice-versa, a drop in remittance inflows might result in a decrease in per capita income. 

Sri Lanka’s remittance income reached US $ 2.9 billion during the first half of 2020, indicating a decline of 8.9 percent from the same period in 2019.