Global migrant remittances set to drop

Global remittance transfers by migrant workers are set to drop globally this year, raising credit risk in countries most dependent on such inflows, says a new report by Moody’s Investors Service.


“The countries that are most dependent on remittances are largely low- and middle-income economies, and we expect the decline in remittance will exacerbate the growth slowdown in these countries,” commented Moody’s senior vice-president Christian de Guzman.


“By affecting household income and consumption, along with current account receipts, a sharp drop in remittances weakens credit profiles through its impact on economic strength and external vulnerability. While the impact on incomes and economic strength is likely to be more gradual, the hit to current account receipts and weakening of external positions can be abrupt,” adds Mr de Guzman.


Among the most vulnerable are the Kyrgyz Republic (B2 stable), Tajikistan (B3 negative), Bermuda (A2 stable) and El Salvador (B3 positive).


Sources of global remittances are highly concentrated, with 25 countries providing nearly 85 per cent of global migrant remittance outflows, and the top-10 countries including many of the largest G-20 economies.


The damage done to labour markets in these source countries, wage subsidies favouring resident employment, and travel restrictions could continue to weigh on migrant labour for some time.


Meanwhile, remittance-receiving countries are largely net oil importers and will benefit from the large drop in oil prices since the start of this year.


Still, in general, the negative current account impact of a 20pc decline in remittances dominates and is significant for the Kyrgyz Republic, Tajikistan and El Salvador.


For these countries, the fall in the current account balance will be the main channel of credit impact of lower remittances.


Global remittances reached an all-time high of $554 billiob in 2019 but are set to fall by $110bn this year, well exceeding the $16.2bn fall recorded in 2009 following the global financial crisis.



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