Fall in remittances from Gulf to APAC countries; impacts ratings

Hyderabad: The COVID-19 pandemic and its subsequent impact on the oil market is having a considerable effect on migrant workers and are likely to suppress remittance flows in the Asia-Pacific (APAC) region, Fitch Ratings said in a report.

The credit-rating agency forecasts at least 12 per cent decline in the remittances in the second half of 2020, as temporary factors fade. Remittances in June and July saw a robust rebound, especially in Bangladesh and Pakistan because of temporary factors that include migrant workers transferring their savings in preparation to return home, Fitch reported.

The Gulf Cooperation Council (GCC), a major source of remittances for the APAC, was hit by the dual shocks of the pandemic and oil price-shock. The foreign currency inflows from the migrant workers provided a stable source of income for the Philippines (8.4 per cent of the GDP), Sri Lanka (8 per cent), Pakistan (7.9 per cent), Bangladesh (6 per cent) and India (2. 9 per cent). Even though remittances account for a small share of GDP in India, it is the largest recipient of remittances globally.

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Remittance flows have helped keep current account deficits contained by offsetting large trade deficits. They also provide economic benefits to recipient countries. First, they support domestic consumption by providing an additional income source to households. According to the Asian Development Bank (ADB), about 14% of households in Bangladesh receive remittance income, 8% in the Philippines, 4% in Pakistan and 2% in India. Second, job opportunities for migrant workers relieve slack in domestic job markets.

The deterioration in remittance inflows is likely to widen current account deficits, contributing to higher external financing needs. For countries with fragile external finances, such as Pakistan and Sri Lanka, the shock to remittances could exacerbate existing challenges.

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