Lifelines in Danger

Author:Antoinette Sayeh and Ralph Chami
Position:ANTOINETTE SAYEH is deputy managing director of the IMF, and RALPH CHAMI is assistant director of the IMF's Institute for Capacity Development.
Pages:16-19
SUMMARY

The COVID-19 pandemic threatens to dry up a vital source of income for poor and fragile countries.

 
FREE EXCERPT
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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