The Remittance Effect: Global Citizens Emerge as Economic First Responders of the Developing World
January 27 2021 - 4:03AM
Business Wire
New Oxford Economics Report
Person-to-person ("P2P") international transfers, or
remittances, sent by global citizens to their homelands represent
the largest foreign economic support structure for developing
economies. According to a new report by Oxford Economics,
commissioned by Western Union (NYSE: WU), a global leader in
cross-border, cross-currency money movement, remittances have
helped smooth COVID-19 pandemic-induced economic shocks, increasing
the resilience of developing nations throughout 2020 and presenting
a potential lifeline for recovery in 2021 and beyond.
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The Remittance Effect: Global Citizens
Emerge as Economic First Responders of the Developing World
(Graphic: Business Wire)
The Oxford Economics Report: The
Remittance Effect: A Lifeline for Developing Economies Through the
Pandemic and Into Recovery identifies several positive
economic and remittance consumer fundamentals that could support
unexpected strength in remittance flows to developing nations
compared to World Bank forecasts of slowdown in 2021.
The report states that global P2P transfers to developing
nations, which surpassed the value of Foreign Direct Investment in
2019, can potentially achieve what overseas development aid (ODA)
and private direct investment cannot - the P2P transfers quickly
and efficiently put money directly into the hands of individuals
who then use the money to fund a broad range of economic
activities. This "Remittance Effect" drives profound gains for
developing economies, including reducing poverty and driving
increases in economic activity. In addition to being engines for
growth, P2P transfers enhance connectivity by linking individuals
worldwide, thereby contributing to economic, social, and political
interdependence between nations, even as governments shut
borders.
"The research further shines a light on the resilience of this
global web of financial interconnectivity and confirms what Western
Union has witnessed repeatedly: Crises make people more determined
to provide support to the people they care about. When times get
hard in developing economies, remittance-senders become front-line
workers of economic security," said Hikmet Ersek, President and
CEO of Western Union.
"This report justifies bestowing a new title of 'Economic First
Responders' upon these global citizens and local heroes. The love
and money they send across the world's borders have helped smooth
the economic shocks from the pandemic and foster resiliency and
recovery within their home nations throughout 2020 and into 2021
and beyond," he added.
The World Bank estimates that the pandemic will push an
additional 88-115 million people into extreme poverty, with the
total potentially rising to as many as 150 million in 2021. The
developing world, home to many of the world's most economically
vulnerable people, will face the most extreme consequences.
To avoid the economic divide, Western Union is encouraging
policymakers across the spectrum to prioritize legal, smart, safe,
and equitable cross-border migration systems, which will uplift
developing nations' economies and continue to support developed
economies to recover and address human capital shortages.
Ersek added, "In the critical task of rebuilding
developing nations in a post-pandemic world, millions of these
Economic First Responders will continue to step up. These heroes
deserve so much credit for the irreplaceable role they play in
their host and home countries' economies. There has also simply
never been a greater need for innovation and technology that
provides the on-the-ground financial support flowing instantly
across borders." Read blog.
For 170 years, Western Union has been focused on connecting
individuals to their families and loved ones globally, anytime,
anywhere, and today, it continues to connect them through one of
the world's largest global financial networks that move 130
currencies electronically worldwide within minutes.
Oxford Economic report - Key
Highlights
- Remittances were a silver lining in a cloudy 2020 for
developing nations.
- Positive data for 2020 on remittance inflows from several
central banks in receiving countries, positive earnings data from
leading money transfer companies, as well as survey evidence
indicating the resiliency of senders, who have been highly
motivated to support families and loved ones back home, have all
supported a stronger than expected potential outturn for
remittances in 2020.
- Family ties and rebounding economies may prove resilient for
remittance flows, potentially exceeding World Bank forecasts for
2021.
- The remittance outturn for 2021 could fall anywhere within a
wide range between a decline and a return to the pre-pandemic trend
of growth, as uncertainty around the outlook is high.
- The World Bank forecast of a further 7.5% slowdown in 2021 may
be exceeded. As predicted by the World Bank, a cumulative fall of
14% over 2020 and 2021 would be unprecedented in the recent history
of remittance flows, which have tended to trend upwards
year-over-year.
- Positive economic trends, sender economy recovery, sender
resilience, and high demand for remittance from receiver countries
could combine to support unexpected strength in remittance flows to
developing nations in 2021.
- A predicted rebound of GDP growth in sender economies, as
vaccines are rolled out, restrictions are lifted, fiscal policy
remains supportive and pent-up demand is released, augurs well for
remittances in 2021.
- Remittances are the hidden engine of global connectivity;
people are single-handedly responsible for the massive capital
movement across the world's borders.
- Financial flows between individuals/people contribute to
interdependence worldwide – social, economic, and political. It is
unmatched by any other type of public or private cross-border
investment flows.
- Remittance flows are directed to meet the recipients' specific
needs in developing economies. In comparison, governments' fiscal
response and flows of overseas development aid (ODA) can sometimes
be delayed and blunter in their application. Also, developing
country governments have less budgetary capacity to support their
economies.
- While the World Bank estimates that remittances fell by 7% in
2020, this decline will be significantly less severe than the
expected decline in private investment capital. UNCTAD expects
foreign direct investment (FDI) to develop economies to decline by
35% to 45% in the full year 2020.
- Remittances multiply through a nation's economy contributing
0.40 cents GDP for every USD1.0 of inflow.
- The .40 cents multiplier is comparable or higher than some
multiplier estimates of FDI or ODA.
- Applied to the $548bn of developing-country remittance inflows
in 2019, this translates to a direct GDP impact on these economies
of $219bn.
- Remittances have short-run effects on national output, as
additional spending is received as income elsewhere in the economy.
However, the full economic benefits of remittances are only
realized in the long term due to the transformative effects of
increased spending on education, health, and other
investments.
- Remittances represent social insurance for households in
developing countries.
- At a micro level, remittances benefit recipient households in
developing countries by providing an additional income source that
helps fund essential expenditures, lowers the incidence of extreme
poverty, shields them against economic shocks, and supports
long-term investment in healthcare and education.
- The global clout of remittances is underappreciated, despite
being the largest foreign capital inflow to developing markets
(excluding exports).
- Remittance flows to developing economies are indispensable,
exceeding ODA by a factor of three. According to the World Bank,
remittances to developing countries totaled $548bn in 2019,
overtaking FDI to become the largest inflow of foreign capital
(excluding exports) to developing markets.
- A robust study of the remittance 'multiplier' is critical,
as the current modeling is inadequate and underestimates the real
effects.
- The remittance 'multiplier' is lower than one due to the impact
of 'leakages' – some of the funds are saved or used to pay off debt
(not spent), while a high share of spending in developing economies
is likely to be on imported goods (e.g., medicines). A lack of
investment opportunities in developing economies may also explain
why remittance flows often fail to generate self-reinforcing
development. However, a more complete measure of remittance
economic impacts that also captures their longer-term
transformative effects would likely result in more extensive
estimates of the multiplier effect.
- Existing research on multiplier impacts is fragmented in terms
of time periods covered, methods used, the multiplier definition,
and the range of impacts measured.
- There is an opportunity to bridge the gap in existing research
to measure the remittance multiplier more comprehensively and
consistently across countries, looking at the individual effects of
different use of funds and factoring in other country-specific
characteristics.
WU-G
About Western Union The Western Union Company (NYSE: WU)
is a global leader in cross-border, cross-currency money movement
and payments. The company's omnichannel platform connects the
digital and physical worlds and makes it possible for consumers and
businesses to send and receive money and make payments with speed,
ease, and reliability. As of the end of September 2020, the Western
Union network included over 550,000 retail agent locations offering
branded services in more than 200 countries and territories, with
the capability to send money to billions of accounts. Additionally,
westernunion.com, the fastest-growing channel in 2019, is available
in over 75 countries, plus additional territories, to move money
worldwide. Western Union moves money for better with our global
reach, connecting family, friends, and businesses to enable
financial inclusion and support economic growth. For more
information, visit www.westernunion.com.
About Oxford Economics Oxford is a leader in global
forecasting and quantitative analysis. Our worldwide client base
comprises more than 1,500 international corporations, financial
institutions, government organizations, and universities.
Headquartered in Oxford, with offices around the world, we
employ 400 staff, including 250 economists and analysts. Our
best-in-class global economic and industry models and analytical
tools give us an unmatched ability to forecast external market
trends and assess their economic, social, and business impact. For
more information visit www.oxfordeconomics.com/all-services.
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For further information please contact: Western Union
Global Communications: Pia De Lima; Pia.DeLima@wu.com Western Union
EU&CIS: Nicholas Mandalas; Nicholas.mandalas@wu.com Western
Union Middle East & Africa: Mohamed El Khalouki;
Mohamed.ElKhalouki@wu.com Western Union Asia-Pacific: Karen Santos;
Karen.Santos2@wu.com
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