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ADB report: COVID-19 impact on international migration and remittance in Asia

Excerpts from the Asian Development Bank (ADB) brief, “COVID-19 Impact on International Migration, Remittances, and Recipient Households in Developing Asia”, by Aiko Kikkawa Takenaka, Economist; Raymond Gaspar, Consultant; James Villafuerte, Senior Economist; and Badri Narayanan, Consultant, Economic Research and Regional Cooperation Department, ADB:  
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Globally, jobs and worker welfare are severely affected by the pandemic. But some sectors are hurt more than others. Hard-hit sectors include retail and wholesale trade, hospitality and recreation, manufacturing, and accommodation and food service sectors, which are engaged largely in nonessential service activities with frequent face-to-face interactions (ILO 2020). Migrant and informal worker are among those facing the most severe impacts, as they often do not have regular contracts nor strong bargaining power.
Migrant workers are more vulnerable from layoffs once prolonged lockdowns and production breaks drive companies out of business. Also, uncertainty looms about the timing of full recovery even as lockdowns are lifted, with concerns about persistent weak demand in some economic sectors. The wide-scale economic cost of the COVID-19 pandemic is expected to reach between $5.8 trillion and $8.8 trillion globally, equivalent to 6.4% to 9.7% of global GDP, reflecting the spread of the pandemic to Europe, the United States (US), and other major economies (ADB 2020). Employment in host economies of Asian migrants is contracting significantly.
According to ILO (2020), the negative effects on jobs are expected to have hit during the second quarter of 2020 in the Americas and in Europe and Central Asia, with working hours likely down by 18.3% and 13.9% in the quarter, respectively, relative to the quarter prior to the outbreak. In Asia and the Pacific and Arab states, working hours are thought to have declined 13.5% and 13.2% in the quarter, respectively. The extent of shocks to migrants’ jobs depends on the sectors in which migrants are employed as well as the overall economic conditions of host countries.
Leisure and hospitality industries employ many Asian migrants, including those in the hard-hit tourism sectors. In the US, for example, the unemployment rate among Asian immigrants reached 14% in April and 14.8% in May. Among all non-US-born workers, those working in leisure and hospitality have been hit hard (unemployment rate of 38.4% in May), transportation and utilities (20.6%), and retail trade (19.9%). In Europe, migrant workers are also disproportionately affected by job losses induced by the pandemic.
Based on the Eurostat, non-European-Union workers saw their unemployment rates higher during the first quarter of 2020 relative to the last quarter of 2019 in many European Union (EU) member countries, including Sweden (+6%), Austria (+3.4%), Belgium (+2.9%), the Netherlands (+1.7%), and the United Kingdom (+1.6%). Notably, unemployment rates among EU nationals in these countries increased more slowly, i.e., Sweden (+0.9%), Austria (+0.1%), and the United Kingdom (+0.2%), and stable in Belgium and even 0.1% lower in the Netherlands.
The construction sector is another major employer of migrants, especially in the Gulf countries and the Russian Federation. While construction projects in the Gulf continue apace despite lockdown restrictions, some sites have shut down where the risk of infection is deemed high among migrants living in densely populated dormitories, making social distancing measures nearly impossible. In the Middle East, including workers from other sectors, over a million migrants are expected to fly home, especially when travel restrictions are eased.
The broken supply chains induced by the pandemic amid simultaneous temporary shutdowns of operations offer grim prospects for migrants’ jobs in the manufacturing sectors. Demand from major economies is relatively weak as firms with suppliers affected by lockdowns are forced to suspend production. Agricultural supply chains are also impacted, leading to the layoffs of migrants, who then return home as a precautionary measure. In Thailand, host to over 3 million migrants, mostly from its neighbors, thousands of jobless migrant workers from Cambodia, the Lao People’s Democratic Republic, and Myanmar employed in agriculture, fisheries, and other sectors have returned home via land checkpoints (IOM 2020).
Travel bans restricting international mobility are taking a toll on workers in transport sectors, including airlines and travel agencies, as well as seafarers and sea-based workers in passenger cruise and cargo ships. As of 21 June 2020, the Philippines’ Department of Foreign Affairs had brought home more than 29,000 sea-based overseas Filipinos, who are known to account for more than 30% of the global maritime workforce.
Meanwhile, newly recruited migrants and those who were on vacation at home face the bleak prospect of losing their jobs. A new batch of Nepali migrant workers bound for the Republic of Korea and Qatar, for example, have been asked to put off their departures until further notice. According to the Philippine Overseas Employment Agency, up to 3,000 Filipinos were immediately affected by the bans, with some Qatar-based workers forced to turn back after boarding planes to Doha.
Moscow’s border closure announcement on 18 March 2020 came as many Central Asians were bound to migrate for seasonal jobs at Russian construction sites, farms, and factories. The large diaspora (permanent migrants) or skilled workers in demand areas (e.g., health professionals and others providing essential services) may have more stable jobs, with access to social protection measures such as unemployment benefits and emergency cash transfers that are available in host countries.
About 15% of Asian migrants in the US are employed in health care, citing Organisation for Economic Co-operation and Development (OECD) data. Saudi Arabia has exempted returning health workers from the Philippines and India from the pandemic-related travel ban, but these workers should undergo a special medical evaluation (CNN Philippines 2020).

REMITTANCE FLOWS TO DEVELOPING ASIA TO PLUNGE AMID THE PANDEMIC

Official central bank data on remittance inflows show significant declines, with some variation in the magnitude and consistency across the countries. During the first months of 2020, remittances began to contract in major migrant source countries with available data. While some migrant workers may feel altruistic and send more money to their families in extremely difficult situations, prevailing weak economic forecasts are pointing toward declining remittances.
However, relative increase in the first remittance inflows is observed for the month of June in selected countries. This can be attributed to the lifting of lockdowns in destinations that allowed migrants to remit over the counter and the introduction of policy measures that incentivize transfer by reducing restrictions and transaction fees. This policy brief explores the potential impact of the COVID-19 outbreak on remittance flows using the Bilateral Labor Migration (GMig2) Model and Database, which is consistent with the General Agreement on Trade and Services Mode 4 or the temporary mobility of natural persons.
The analysis assumes an endogenous change in the number of employed migrants based on changes in wage differentials between home and host countries. Remittances are kept as a fixed proportion to income earned by guest foreign workers in the host countries. In this regard, the shock from COVID-19 to remittances is transmitted three ways:
  • through the decline in GDP growth of all countries (source and host) which affects the wage differential and the employment status of labor between source and host countries;
  • through shutdown of economic activities which leads to widespread job losses, including foreign workers in host economies; 
  • through the fall in the demand for, and prices of oil, which affects oil sector production. 
These shocks affect employment and wages by sector, which indirectly affects the wages and income earned by all labor types, which include foreign workers. In turn, remittances fall along with the decline in income earned by foreign workers. The analysis from this brief involves two scenarios. The “baseline” scenario was obtained from the long-containment scenario of the COVID-19 economic impact assessment discussed in ADB Policy Brief 133 (ADB 2020).
Under this scenario—which anticipates country-specific declines in tourist arrivals, domestic consumption, investment, and production, and increase in trade costs—it takes about 6 months for economies to get their domestic outbreaks under control and to start normalizing economic activities. It is also assumed that the economic impact of COVID-19 dissipates halfway in the last 3 months of the outbreak. Moreover, we also added the effects of lower demand for prices of oil in the baseline scenario, which amplifies the hit to GDP.
The “worst-case” scenario assumes that the domestic outbreak control and resumption of economic activities take a year’s time. It also assumes that the economic impact of COVID-19 persists throughout the year and dissipates halfway in the last 3 months of the outbreak. In assessing the analysis presented, it is important to keep in mind the natural omissions and simplifications that could affect the model results. First, a few important channels of COVID-19 impact on migrant workers and remittances have not been accounted for.

Remittance Impact under Baseline Scenario

In the baseline scenario, global remittances are expected to decline by $57.6 billion in 2020, equivalent to 9.7% of total remittances globally. Global remittances to Asia and the Pacific will fall by $31.4 billion, equivalent to 11.5% of the baseline remittances in 2018. The larger hit to remittances in the region reflects the region’s larger share of migrant workers globally. By subregion, South Asia recorded the largest fall in remittances, at $18.3 billion (58.3% of Asia’s total loss), followed by Southeast Asia $6.2 billion (19.7%), and the PRC at $3.5 billion (11.1%).
Remittances in Central Asia also fell by $2.2 billion, while remittances in the Pacific fell by $116 million. As a proportion of the 2018 baseline remittances to the region, South Asia, Central Asia, and Southeast Asia experienced the largest falls, at about 15.8%, 15.7%, and 9.9%, respectively. Looking closely at the expected decline in remittances to Asia, the majority of forgone remittances is explained by the fall in remittances from the Middle East, which accounts for 53.7% at $16.8 billion. This is followed by the fall in remittances from the US, 30% or $8.8 billion; and the fall in remittances from the Russian Federation, about 5% or $1.6 billion, of which $1.5 billion is the decline in remittances going to Central Asia.
Generally, the results in the baseline scenario are quite muted, because the impact of COVID-19 exerts its full impact in the first quarter and halfway through, its impact in the second quarter dissipates. While this economic impact may be feasible for some of the source countries, such as Viet Nam and Thailand, which effectively contained their outbreaks within 3 months, most of the destination economies for migrants are still reeling from the effects of COVID-19 on their economies.
It is likely that it will take more time before borders reopen to foreign workers, even if the domestic outbreaks in host economies are contained. Moreover, even if border restrictions are lifted, it is more likely that jobs will be offered first to residents and citizens of the host countries, rather than to guest workers. The baseline is therefore still feasible, but the window for this scenario is closing fast.

Remittance Impact under the Worst-Case Scenario

Assuming that economies take about a year to get their domestic outbreaks under control and bring economic activities back to normal, global remittances are expected to decline by $108.6 billion in 2020, equivalent to 18.3% of the baseline remittances globally. Remittance receipts in Asia will fall by $54.3 billion, equivalent to 19.8% of the baseline remittances in 2018. By subregion, remittances in South Asia will record the largest fall, by $28.6 billion (24.7% of 2018 baseline), followed by remittances to Central Asia ($3.4 billion, 23.8%), Southeast Asia ($11.7 billion, 18.6%), and East Asia excluding the PRC and Japan, (1.7 billion, 16.2%).
% remittance loss (worst case senario)
Remittances to the Pacific will also fall ($267 million, 13.2%). Similarly, the majority of the decline in remittance flows to Asia is explained by a fall in remittances from the Middle East, which accounts for 41.4% of the global loss at $22.5 billion (Table 4). This is followed by the fall in remittances from the US, (37.9%, or $20.5 billion). The fall in remittances from the EU and the United Kingdom accounts for 6.3% or $3.4 billion.
The decline from the Russian Federation amounts to $2.1 billion, of which $2 billion is a decline in remittances going to Central Asia. By percentage decline from the baseline, the Middle East and the Russian Federation experienced the sharpest decline, of over a third, primarily reflecting the effects of low demand and prices for oil, on remittances.

Subregional Impact under the Worst-Case Scenario

By subregion, the decline in the value of remittances is largest for South Asia, at $28.6 billion; followed by Southeast Asia, at $11.7 billion; the PRC, at $7.9 billion; Central Asia; at $3.4 billion; East Asia excluding the PRC, at $1.7 billion; and the Pacific, at $267 million (Figure 4). Looking at the source of the decline by recipient subregions, various remittance source economies (migrant hosts) have different impacts on the Asian subregions. For South Asia, the majority of the decline in remittances (65.8%) is explained by the decline in remittances from the Middle East, followed by the US, at 21.8%.
For Southeast Asia, the US leads, with a share of 52.9%, followed by the Middle East, at 31.3%, and the EU and the UK, at 5.6%. For the PRC, the US also accounts for 69.9% of the decline in remittances, followed by Asia, at 14.6%. For Central Asia, the Russian Federation accounts for 60%, followed by the US, at 18.4%, and Asia, at 12%. The US explains about three-quarters of the decline in remittances to the Pacific, followed by Asia at 18.7%, and the rest of the world, at 4.7%.

Economy-wide Impact under the Worst-Case Scenario

The results show that the COVID-19 impact on remittances ranges from a 5.2% decline from baseline remittances in 2018 for the least affected economy to almost a 30% decline for the most-affected (Figure 5). Among developing Asian economies: the five worstaffected are Nepal, where remittances could fall by 28.7%; Tajikistan (27.9%), Bangladesh (27.8%), Pakistan (26.8%), and the Kyrgyz Republic (25.2%). Most Central Asian economies are also heavily affected, with remittances falling by over 21%. For Southeast Asia, the Philippines is the most affected, with remittances falling over 20%; and others by over 15%.
Remittances for most of the Pacific island economies are expected to fall by around 13%. In general, the magnitude of the impact on remittances by economy reflect the distribution of the decline in GDP observed in the host economies. The two-digit decline in remittances expected this year, if realized, will record unprecedented decline in remittances to the region. During the global financial crisis in 2007–2008, remittances to the Asia and Pacific region declined 2.7% to $173 billion in 2009. In this period, remittances to Central Asia fell most (20%) and followed by East Asia (13%), attributed largely to lower remittances received by the PRC.

REMITTANCE-DEPENDENT HOUSEHOLDS AT RISK OF FALLING INTO POVERTY

International remittance inflows are critical in Asia’s efforts to uplift the lives and welfare of poor people in the region. In a crosscountry study involving the 10 migrant-sending countries in Asia, Yoshino, Taghizadeh-Hesary, and Otsuka (2017) estimate that a 1 percentage increase in the share to GDP of remittances inflow from overseas is associated with a reduction in the poverty gap ratio by 22.6% and poverty severity ratio by 16%. A study based on microdata from selected economies in South Asia and Southeast Asia suggests that a 10% increase in remittance inflows leads to a 3%–4% rise in real GDP per capita.
Among migrant-sending households, remittances help acquire essential items such as food, clothing, shelter, health, and education. Hundreds of thousands of households in the countries of origin depend on remittance incomes. Nearly 90% of households in Tonga, 80% in Samoa, and more than 40% in Fiji are reported to be receiving some amount of remittances from overseas (Figure 6). Unexpected loss of income due to the reduction or suspension of remittances can leave recipient households particularly vulnerable. For example, in the Kyrgyz Republic, remittances constitute 75% of recipient households’ income on average.
Greater concerns arise among households of older persons or households with no income earner. In the Philippines, the highest prevalence of citizens receiving remittances is among senior citizens, at over 21% (Philippine Statistics Authority 2020). Murakami, Shimizutani, and Yamada (2020) project remittance inflows to the Philippines to fall by 23%–32% in 2020 relative to levels absent the pandemic, primarily attributed to adverse macroeconomic shocks in host economies. Consequently, household spending per capita will be reduced by 2.2%–3.3%.
During the global financial crisis, which resulted in a 2.7% decline in overall remittance inflows to Asia and the Pacific, a multicountry survey supported by ADB found that remittances received by households declined on average by 19.3% (Bangladesh) to 29.8% (Indonesia) in 2009, with significant variation in how households managed such shocks (Sugiyarto 2012). While some well-off families used savings to compensate for the loss, more vulnerable households were compelled to work longer and cut spending on necessities such as food and education.
Without continuous remittance flows, remittance-dependent households can fall into poverty or have difficulty meeting basic essential needs, as well as access education and health services. Loan repayment is another challenge for remittance recipient households. The increasing incidence of overseas migration among poorer households highlights the relative ease of access to finance in paying for migration-related costs during the past decade.
Many of the existing emergency social protection measures introduced by the governments are linked to employment (e.g., unemployment benefits, minimum wage guarantee program) and these by design will not reach hard-hit remittance recipient households. It is important that households experiencing general income loss, including from remittance sources, are also covered in assistance through measures such as cash transfers. Households receiving domestic remittances from family members in lockdown cities confront similar challenges and deserve equivalent supports.
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