- Estimates 20% drop in remittance income to slash 1.5% of SL’s GDP growth in 2020
- June remittance income staged quick rebound to reach pre-pandemic level
- Remittance income in first 6 months down by 8.9% to US$ 2.9bn
- Expects fall in remittance to only partially reverse in 2021
The slowdown in worker remittances resulted from the pandemic could weigh on economic growth of countries heavily dependent on the foreign income flow as it could cut into the incomes, consumption and thereby the investments of recipient economies raising their credit risk, cautioned Moody’s Investors Service.
Remittance income from migrant workers made a rebound starting from May after hitting the bottom in April, with June being the most pronounced with the income reaching a pre-pandemic level of US$ 572.5 million, staging a 6.7 percent growth from the same month in 2019.
However, remittance income in the first 6 months in 2020 reached US$ 2.9 billion, down 8.9 percent from the same period in 2019. The World Bank has projected a 19 percent drop in the remittance income to Sri Lanka this year to US$ 5.4 billion from US$ 6.7 billion in 2019.
Remittances generally provide countercyclical support to beneficiary countries at times of economic crisis as migrants send money home to support their families, Moody’s said.
However, with the pandemic affecting all regions globally, the rating agency is of the opinion that it is unlikely to be the case this time round, affecting household incomes and thereby consumption in beneficiary countries.
Global worker remittances reached an all-time high of US$ 554 billion in 2019, but the World Bank estimated it could fall by 19.7 percent or US$ 110 billion to low and middle income economies in 2020 due to coronavirus related disruptions and labour migration.
As the global economic growth is under severe stress from the pandemic, there will be suspension or delays in investments such as construction, which will curb demand for migrant labour while severe restrictions on cross-border movement of people have effectively stopped the global deployment of new migrant workers.
Meanwhile, weaknesses in the Gulf Cooperation Council (GCC) countries due to low oil price will specially hurt South Asian economies, including Sri Lanka, Bangladesh and Pakistan.
“The shock will be felt across all developing regions, with the sharpest drop for Europe and Central Asia (27.5 percent), followed by Sub- Saharan Africa (23.1 percent), South Asia (22.1 percent), North Africa and Middle East (19.6 percent), Latin America and the Caribbean (19.3 percent) and lastly East Asia and the Pacific (13.0 percent),” the rating agency said in a new report on lower remittances and its impact on economic growth and credit risks of nations.
Hence, Moody’s estimated a 20 percent decline in remittance flows to erase as much as 1.5 percent of the GDP growth for Sri Lanka as it could impair the incomes, consumption, investments and imports, which will all temper the shock on economic growth.
Sri Lanka has a B2 rating from Moody’s with a review for downgrade.
Meanwhile, Moody’s opined that the expected fall in remittance flows in 2020 could partially reverse in 2021 in line with their assumptions for global growth.