World Bank Predicts 20% Fall In Remittances Due To COVID-19

By Philip Rosenstein
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Law360 (April 23, 2020, 8:46 PM EDT) -- The World Bank has said that it projects a roughly 20% decline in global remittances this year as a result of the COVID-19 pandemic and its economic knock-on effects, a fall that the global organization said would be the largest in recent history.

In a report published Wednesday, the World Bank said that it projected a 19.7% reduction in global remittances, sums of money often sent by immigrant workers back to their home countries. This decline would represent a nearly $100 billion fall in remittances, from $554 billion in 2019 to $455 billion in 2020.

"Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies," World Bank Group President David Malpass said in a statement. "Remittances help families afford food, health care and basic needs."

Malpass added that the World Bank is in the midst of providing support for countries, and would focus on reinforcing remittance channels.

The most affected region is expected to be Europe and Central Asia, which is predicted to see a 27.5% decrease in remittance flows, with Sub-Saharan Africa seeing a 23.1% decline and South Asia bracing for an anticipated 22.1% decline, according to the report.

The contraction in remittances is likely be further exacerbated by an even larger decrease in foreign direct investment in 2020, expected to fall 35%, the report noted.

The World Bank report outlined that the average costs of remittances remain high, with a global average of a 6.8% fee to send $200 in the first quarter of this year. The highest average regional cost is found in Sub-Saharan Africa at 9%. The United National Sustainable Development Goals aim to reduce the average cost of remittances to below 3% by 2030.

"Quick actions that make it easier to send and receive remittances can provide much-needed support to the lives of migrants and their families," said Dilip Ratha, lead author of the brief and head of KNOMAD, said in a press release. "These include treating remittance services as essential and making them more accessible to migrants." KNOMAD, or the Global Knowledge Partnership on Migration and Development, was launched by the World Bank as a policy think tank on global migration.

Fintech approaches could have some impact on improving the speed and cost of remittances. Cryptocurrency company Ripple, which has partnered with MoneyGram to help bolster its cross-border payment systems, has said that MoneyGram will be able to lower the cost per transaction to "fractions of a penny" by using the XRP digital asset. Further, the transaction time using XRP is around two to three seconds, according to the company.

--Editing by Alanna Weissman.

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