Remittances to remain under pressure, says Moodys

The global rating agency Moodys on Monday said that the inflow of remittances into the countries dependent on these earnings will slow down due to the coronavirus implication and have a negative impact on the current account balances of these countries. 

“The coronavirus pandemic has triggered a fall in the wages of and loss of employment for migrant workers. Remittance transfers by these workers to their home countries will decline sharply as a result, by around 20 percent ($110 billion) globally in 2020″, according to World Bank estimates, the Moodys release pointed out.

“The countries that are most dependent on remittances are largely low- and middle-income economies. In this report, we consider the impact of lower remittances on growth and external positions.”

Moreover, it also said that for Ukraine (B3 stable), Jordan (B1 stable), Togo (B3 stable), Pakistan (B3 review for downgrade) and Mali (B3 stable), relief on import bills from lower oil prices offsets a drop in remittances of around 2pc.

“Weakened external positions resulting from lower remittances will be the main channel of credit impact. Remittance-receiving countries are largely net oil importers and will benefit from the large drop in oil prices since the start of 2020.”

“Still, in general, the negative current account impact of a 20% decline in remittances dominates and is significant for the Kyrgyz Republic Tajikistan and El Salvador. For these countries, the fall in the current account balance will be the main channel of credit impact of lower remittances,” the press release further added.

Pointing out the slowdown in the gulf countries, the agency warned that “Weakness in the GCC will especially hurt South Asian economies such as Bangladesh (Ba3 stable), Pakistan and Sri Lanka (B2 review for downgrade).”

The agency has put Pakistan on a review for downgrade due to the coronavirus shocks to the country’s economy hampering its ability to pay back loans.