COVID and Reverse Remittances: When Families Send Money to Support Migrant Parents Abroad
Remittances, the money migrants send to family members back home, tend to decline during times of crisis in migrant-receiving economies, but this has not been the case during the pandemic of COVID. Catherine E. De Vries, David Doyle, Hector Solaz, and Katerina Tertytchnaya organized three focus groups in Kyrgyzstan, the world’s third most remittance-dependent economy, just behind Tonga and Lebanon. They found that the impact of the pandemic varied according to the sectors of migrant employment, with the hotel industry being the most affected. Some family members say they sent money from Kyrgyzstan to their migrant members in Russia.
In April 2020, the world Bank predicted that due to the pandemic, global remittances, the money migrants send to family members in their countries, would decline by about 20%. This is one of the steepest drops in history. By comparison, during the Great Recession of 2008-2009, global remittances fell by about 6%. A year after the start of the pandemic, however, remittances have shown resilience.
According to the latest World Bank report report, published on May 12, 2021, compared to 2019, remittances to lower middle income countries (LMICs) in 2020 fell by 1.6%. Indeed, due to the decline in foreign direct investment, remittances to LMICs, excluding China, even exceeded the combined total of foreign direct investment and official development assistance. Fiscal stimulus packages in migrant-receiving economies, growing demand for migrant labor in construction and agriculture, and migrants’ own desire to help their families back home have helped the remittances. of funds to defy forecasts. However, the world average that we have just cited masks important differences. While remittances to Latin America and the Caribbean increased by 6.5%, for example, remittances to Europe, Central Asia and sub-Saharan Africa fell by about 9, 7 and 12.5%, respectively.
To find out how fluctuations in remittances have influenced the livelihoods of beneficiaries in some of the worst-affected regions of the world, we held three focus groups in Kyrgyzstan. In 2020, remittances accounted for 29% of the country’s GDP, making Kyrgyzstan the world’s third most dependent economy on remittances, just behind Tonga and Lebanon. Due to the pandemic and low oil prices, remittances from Russia, the main destination for Kyrgyz migrants, fell by 17% in 2020. The focus groups we organized took place between April 30 and May 1, 2021 in Bishkek, the Kyrgyz capital, as well as in Osh and Osh Oblast. Information from these groups helps paint a nuanced picture of the pandemic’s impact on remittances and their recipients, with distinct policy implications. We present them below.
COVID-19 and remittances: sector differences
Focus group discussions highlight how the impact of the pandemic varies across sectors of migrant employment. Migrant families employed in essential services, such as shops, factories or the agricultural sector, report receiving a stable amount of remittances throughout the past year. However, migrant families employed in the hospitality industry report receiving no remittances for weeks or experiencing large fluctuations in the amount of remittances received.
Focus group participants paint a grim picture of the conditions faced by migrants employed in these sectors, with many finding themselves without pay and unable to pay their rent. Indeed, some family members claim to have sent money from Kyrgyzstan to their migrant members in Russia. Reverse remittances were made possible either through loans taken out by families to support their migrant relatives, or by drawing on household savings, accumulated, in part, by setting aside income paid before the pandemic. Harnessing savings accumulated through remittances also helped many households smooth their consumption during the first months of the pandemic.
Our qualitative data from Kyrgyzstan echoes previous research on how the effect of the pandemic on remittances may vary depending on the sector of migrant employment. A report released by the U.S. Federal Reserve, for example, asks whether during the pandemic, the increase in remittances to Mexico – unlike the drop in remittances to El Salvador – can be explained in part by the boom in construction-related activities in the summer of 2019. As noted elsewhere, sectors like construction, home improvement and landscaping in the United States are disproportionately served by Mexican immigrants. Testing these expectations, however, is often difficult, as we lack detailed, high-quality data on the share of remittances generated by each employment sector in recipient economies.
Fluctuations over time in remittances
The panel discussions also highlight important differences over time regarding the pandemic’s effect on remittances. Our qualitative data match the evidence of the aggregate The data, and imply that the overall share of remittances fell sharply in the second quarter of 2020, but gradually began to recover in the third quarter of the year. The initial decline in remittances appears to be due to several factors, beyond the restrictions imposed in the migrant-receiving economies. The main one is the increase in the cost of plane tickets and PCR tests, which have made travel abroad more expensive than usual. So while the majority of Kyrgyz migrants did not attempt the return trip – it was mainly women who returned, largely driven by the lack of childcare in the country – neither did new and seasonal migrants attempt to leave the country, at least in the first half of the year. The increase in remittances later in the year is due to increased demand for migrant labor and higher wages in the Russia, especially for people employed in construction and agriculture. These and similar factors may also explain the rebound in remittances to other parts of the world. Similar to Kyrgyzstan, remittances to Guatemala, Sri Lanka and Albania also declined in the second quarter of 2020, but recovered later in the year. year.
Long-term impact: household spending decisions
How does the pandemic experience affect the long-term spending decisions of migrant households? Focus group participants point out that the pandemic has highlighted the need to accumulate precautionary savings, as income support measures are lacking. Participants indicated that they will not be embarking on home improvement projects for a long time and that, where possible, they will save transferred income for the future. These decisions will, however, delay economic recovery in the economies of origin of migrants. Money invested in savings – instead of being invested in renovating and building homes, or in retailing, can make a recession worse. Already in 2020, the real GDP of Kyrgyzstan contracted 8.6 percent.
There are lessons to be learned here. Ensuring that migrant families are supported through social service programs and cash transfers can not only help remittance recipients smooth out their consumption, but could also ensure that they continue to reinvest remittances in the community. economy, thereby strengthening long-term growth and accelerating the recovery.
- This blog post is based on research funded by St Hugh’s College, University of Oxford. The reference for ethical approval of the project is SSH / DPIR_C1A_21_009
- The post expresses the point of view of its author (s) and does not necessarily represent that of LSE Business Review or the London School of Economics.
- Highlighted picture through Irene Forte at Unsplash
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