Lifelines in Danger

AuthorAntoinette Sayeh and Ralph Chami
PositionANTOINETTE SAYEH is deputy managing director of the IMF, and RALPH CHAMI is assistant director of the IMF's Institute for Capacity Development.
Pages16-19
16 FINANCE & DEVELOPMENT | June 2020
PHOTO: URDEE IMAGE/ZUMA WIRE/ALAMY LIVE NEWS
The COVID-19 pandemic threatens
to dry up a vital source of income for
poor and fragile countries
Antoinette Sayeh and Ralph Chami
Lifelines
in Danger
T
he COVID-19 pandemic is crippling
the economies of rich and poor coun-
tries alike. Yet for many low-income and
fragile states, t he economic shock will be
magnied by the loss of remitt ances—money sent
home by migrant and guest workers employed in
foreign countries.
Remitta nce ows into low-inc ome and fra gile
states represent a lifeline that support s households
as well as provides much-needed ta x revenue. As of
2018, remittance ows to these countries reached
$350 billion, surpassing foreign direct invest ment,
portfolio investment, and foreign aid a s the single
most important source of income from abroad (see
Chart 1). A drop in remittance ows is likely to
heighten economic, scal, and socia l pressures on
governments of these countries already struggling
to cope even in normal times.
Remittances a re private income transfers that are
countercyclical— that is, they ow from migrants
into their source country when that c ountry is expe-
riencing a macroeconomic shock. In th is way, they
insure famil ies back home against income shocks,
supporting and smoothing their consumption.
Remittances a lso nance trade ba lances and are
a source of tax revenue for governments in these
countries that rely on value-added t ax, trade, and
sales taxes ( Abdih and others 2012).
In this pandemic, t he downside eect of remit-
tances dr ying up calls for a n all-hands-on-deck
response—not just for the sake of t he poor coun-
tries, but for the rich ones as well. First, t he global
community must recogni ze the benet of keeping
migrants where they are, i n their host countries, as
much as possible. Retaining migrants helps host
countries sustai n and restart core services in t heir
economies and allows remitta nces to recipient
countries to keep owing, even i f at a much-re-
duced level. Second, donor countries and interna-
tional nancia l institutions must also step in to
help migrant-source countries not only ght the
pandemic but also cushion the shock of losing t hese
private income ows, just when these low-income
and fragile countries need them most.
Migrant worker in Bangkok, Thailand.

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