Then came the COVID-19 pandemic – and, ironically, a chance to improve a unique segment of the global financial system that accounts for more than five per cent of gross domestic product for at least 60 low- and medium-income countries – more than the total of foreign direct investment or official development assistance handed out by governments.
“Regardless of whether nor not the (post-coronavirus) recovery will be faster than expected, the global pandemic has exposed the vulnerabilities of the global remittances system,” said Gilbert F. Houngbo, President of the International Fund for Agricultural Development (IFAD), a specialized agency of the UN in Rome.
“That is why now is the time to fix these vulnerabilities no matter what the economic scenario will be”, he told UN News in the run-up to the International Day of Family Remittances on 16 June.
Last year, remittances to low- and medium-income countries hit a record $554 billion, according to the World Bank, with 200 million migrant workers in 40 rich countries sending home funds to support 800 million relatives in more than 125 developing nations.
Half of those receiving families live in rural areas where remittances count the most, Mr. Houngbo said.
$110 billion drop off
But with the onset of the novel coronavirus pandemic, the World Bank projects that cross-border remittances will fall by 20 per cent, or $110 billion, to $445 billion, potentially pulling tens of millions below the poverty line while undermining progress towards fulfilling the 2030 Agenda for Sustainable Development.
With no V-shaped recovery likely in 2021, savings will be depleted, and local conditions will worsen, as remittances are not expected to return to pre-pandemic levels for some time, Mr. Houngbo explained.
“While the reduction in remittances will not fall evenly on all families, nor across all continents, societal impacts will be substantial and sustained”, he told UN News via e-mail.
In response, Switzerland and the United Kingdom – joined by several other Member States, the World Bank, the United Nations Development Programme (UNDP) and other UN agencies and industry groups –issued a global “call to action” on 22 May to ensure that migrant workers and diaspora communities can keep sending back money in ways that can also improve the remittance system.
Essential public service
It urges policymakers not only to declare the provision of remittances as an essential public service, but also to support the development of more efficient digital remittance channels.
To regulators, it asks that they provide guidance for “know-your-customer” requirements, that are critical for scaling up digital financial services, particularly for undocumented persons with no access to a bank account.
And it encourages remittance service providers to explore ways to ease the burden on their migrant customers by lowering transaction fees, which now average 6.8 per cent worldwide, more than half the target set in the Sustainable Development Goals, according to the World Bank’s most recent Migration and Development Brief.
‘A lifeline in the developing world’
“Remittances are a lifeline in the developing world – especially now,” said Secretary-General António Guterres on 19 March. “Countries have already committed to reduce remittance fees to 3 percent…The crisis requires us to go further, getting as close to zero as possible.”
For its part, the IFAD says it is partnering with financial technology firms, mobile operators, commercial banks and postal networks, to integrate digital solutions to improve remittance transfers to rural areas.
In addition to its Financial Facilities for Remittances initiative, it is strengthening the ability of rural families to weather tough times through financial literacy and planning programmes, among other capacity-building efforts.
Mr. Houngbo, a former Prime Minister of Togo who has led IFAD since 2017, said that for the past 15 years, the focus of international attention on remittances has been on the “sending side”, particularly high transaction costs.
“We need to emphasize, however, that the development impact of remittances is really on the receiving end – where, at this time, families are struggling with the sudden disruption of their economic lifelines,” he said.