Looking forward, the World Bank predicts that remittance flows to developing countries will contract by a further 7.5% in 2021. While the World Bank estimates that remittance flows to developing countries (low-and-middle income economies) contracted by 7.0% in 2020, this decline is likely to have been far less severe than the downturn in private investor capital. The report explores and shows how remittance flows remain a crucial lifeline in supporting developing economies through the current pandemic crisis and into the recovery.Īlthough remittances slowed during the pandemic, they remained more resilient than other private capital flows, making them even more important as a source of foreign inflows for receiving countries. This report examines the available evidence on remittance flows and their potential economic effects.
Understanding the role and importance of remittances is particularly important at the current juncture, with the global economy experiencing a uniquely sharp and synchronized shock as a result of COVID-19. Remittances help recipient households to increase spending on essential goods and services, invest in healthcare and education, as well as allowing them to build their assets, both liquid (cash) and fixed (property), enhancing access to financial services and investment opportunities. Remittances act as a form of 'social insurance', supporting households' capabilities to resist economic shocks. At a micro level, remittances benefit recipient households in developing countries by providing an additional source of income and lower incidences of extreme poverty. At a macro level, remittances support growth and are less volatile than other private capital flows, tending to be relatively stable through the business cycle. The rising value of remittance flows into developing countries in recent years is often not widely appreciated.