Why international money transfers to Ukraine hardly changed?
By 2020, free movement between almost all countries in the world has become a common thing for people. The moment when countries would “close down” and international travel would become out of the question or difficult task seemed impossible to people. Of course, this and other consequences of Covid-19 influenced migration processes and, in turn, the remittance flows.
Economic slack on a global scale, low employment levels in recipient countries, declining oil prices, etc. have resulted in the drop in the degree of international migration — for the first time over the past 10 years. Therefore these tendencies have led to the declines in remittance flows. Although economic activities and employment levels around the world have rebounded to varying degrees from the depths reached in the second quarter (Q2) of 2020, they are still far from pre‐crisis levels. At the same time, the lift of precautionary measures by states in 2021 remains unlikely with a constant increase in the number of cases and the lack of a vaccine. Hence the World Bank forecasts the decline in remittance flows to low‐ and middle‐income countries (LMICs) by 7.2 percent, to $508 billion in 2020, followed by a further decline of 7.5 percent, to $470 billion in 2021. In total, the amount of money sent home by migrant workers could decrease by 14 percent by 2021, compared to the level reached in 2019, before the outbreak of COVID-19.
Even though remittance flows will decline in 2020, their relative importance as a source of external financing for LMICs is expected to increase in 2020. Remittance flows to LMICs touched a record high of $548 billion in 2019 — larger than foreign direct investment (FDI) flows ($534 billion) and overseas development assistance (about $166 billion). However, the drop in FDI flows are projected to be even sharper — FDI flows to low- and middle-income countries are projected to decrease by almost 32% in 2020 due to the global pandemic, compared to their 2019 volume of $531 billion. Accordingly, the gap between remittance and FDI flows will further widen.
The three large recipients of remittances — Mexico ($39 billion in 2019), Pakistan ($22 billion) and Bangladesh ($18 billion) managed to escape a decline in Q2 and seem to register increases in Q3. In the case of Mexico, a sharp rise in remittance flows observed in Q1 2020 may have been triggered by a 25 percent depreciation of the peso against the US dollar. So Mexican migrants in the United States remitted more and took advantage of lower prices (in US dollar terms) of goods and assets in Mexico. However, the weak employment situation in the United States — employment of Hispanics declined by 5 million in April — is likely to slow remittance flows in the near future.
In the case of Pakistan, the sharp increase in remittances in July could be at least partially attributed to the fact that many people were unable to make the pilgrimage to Mecca this year due to the world quarantine and a sharp reduction in the number of Haj visas. In 2019, more than 1.8 million foreigners made the Haj, whereas this year only local residents (formally 1,000) were permitted. Pakistani migrants remitted home the money saved. In addition, the government’s efforts to attract remittances through tax incentives may be working.
This same reason may also have affected remittance flows to Bangladesh in July 2020. But perhaps the more important reason for a whopping 53.5% year‐on‐year increase in remittance flows in Q3 was the aid provided to rebuild the country after the flood that inundated more than one‐quarter of the country’s landmass, affecting nearly 1 million homes.
Meanwhile in Ukraine
According to the NBU inflation report for April 2020, remittance inflows to Ukraine in 2020 had to decrease by $2.6 billion (20%), to $10 billion.However, remittances from migrant workers turned out to be more resistant to the crisis — the decrease was not that serious. So in the updated reports for July and October the forecasts are more positive.
The return of Ukrainian migrants to recipient countries for work and a more stable demand for migrant workers from Ukraine there (in particular in Poland) helped to approach the previous indicators. A slight decrease in remittances inflows is expected in 2020 (by 4%). By the end of the year, the number of migrants will reach the pre-crisis levels, therefore, it’s expected that in 2021 the remittance flows will reach the 2019 level and will continue to grow.
Ukraine is observing positive trends in remittance inflows now. While, according to the NBU, the volume of remittances declined by 2.5% or $220 million to $8.48 billion in January-September 2020 compared to the same period last year ($8.7 billion), in September 2020 Ukrainians who work abroad remitted $1.098 billion to the country, which is 5.58%, or $58 million more than in September last year ($1.04 billion). Steady remittance inflows are also taking place due to the cuts in consumer spending during tight quarantine restrictions. This is why our specific case isn’t unique, but rather logical for our role as a recipient country.