Africa: Decline in remittances as virus hits strong economies

By Njiraini Muchira

East Africa countries should brace for a sharp drop in remittances due to the economic crisis induced by the COVID-19 pandemic, a development that is bound to exert significant pressure on regional current accounts and currencies.

The World Bank is predicting a global plunge in remittances with sub-Saharan African anticipated to record a 23.1 percent decline from US$48 billion last year to US$37 billion this year.

The anticipated decline is attributed to a combination of factors driven by the COVID-19 outbreak in key destinations where African migrants reside including in the EU, the US, the Middle East and China where the pandemic has been devastating.

“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,” said David Malpass, World Bank Group president.

Protecting currencies

The decline in remittances is already being felt in Kenya with Central Bank of Kenya data showing that Kenyans abroad sent home US$218.9 million in March compared to US$240.9 million sent in January.

The drop, and a sharp decline in exports because of the pandemic have resulted in Kenyans reserves plunging to US$7.33 billion in the week ending April 17 compared with US$7.39 billion the previous week.

The squeeze in the forex reserves continues to exert pressure on the Kenyan shilling that depreciated to 107.25 against the US dollar this week.

Until the outbreak, the shilling was largely stable at 101 to the dollar.

In Uganda, the shilling depreciated against the US dollar by 2.2 percent between February and March 2020 while in Tanzania the currency has managed to remain largely steady to the dollar.

Globally, the average cost of sending US$200 was at 6.8 percent in the first quarter of 2020 with the most expensive corridor being mainly in the Southern African with a cost of as high as 20 percent.

The bank projects global remittances to decline sharply by about 20 percent this year, the worst decline in recent history that will largely be driven by a fall in the wages and employment of migrant workers who tend to be more vulnerable during an economic crisis in a host country.

In Europe and Central Asia the remittances are expected to decline by 27.5 percent, South Asia 22.1 percent, Middle East and North Africa 19.6 percent, Latin America and the Caribbean 19.3 percent, and East Asia and the Pacific 13 percent.

The World Bank reckons that remittances to low and middle-income countries are projected to fall by 19.7 percent to US$445 billion – a loss of a crucial financing lifeline for many vulnerable households.

“Remittances help families afford food, healthcare and basic needs. We are working to keep remittance channels open and safeguard the poorest communities’ access to these needs,” said Malpass.

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