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The deepening impact of the coronavirus pandemic will force expat workers in the Gulf and around the world to leave their host countries and remittance flows to poor economies will dry up, as a result, experts have warned.
Immediate action is required from host countries to protect the welfare of foreign employees and ensure they remain employed despite the downturn, otherwise, the economic shocks caused by coronavirus will be “magnified,” the International Monetary Fund (IMF) said in a note published late Monday.
“In Gulf states, such as Saudi Arabia and the United Arab Emirates (UAE), which rely on migrant labour from the Middle East, North Africa and Southeast Asia, the drop in the price of oil and economic activity could result in migrants returning home,” authors of the note Antoinette Sayeh, IMF deputy managing director, and Ralph Chami, assistant director of the IMF’s Institute for Capacity Development, said.
“They are likely to join the jobless in their home countries - in labour markets already brimming with unemployed youth - as well as put more pressure on already fragile public health systems. This could heighten social pressure in countries already ill-prepared to deal with the pandemic and possibly also fuel spillover beyond their borders,” they added.
Exodus
Countries in the Gulf Cooperation Council (GCC) are dependent on migrant labour. In the UAE alone, an estimated 88 percent of the population is made up of expatriates. However, recent reports have suggested that, as the economic toll of the COVID-19 crisis deepens, a growing number of resident foreigners are looking to return home due to unemployment.
“There are reports that hundreds of thousands of expats, mostly from Asia, have registered for repatriation flights,” Scott Livermore, chief economist at Oxford Economics Middle East, said in a note furnished to Zawya.
Livermore said the burden of job losses is expected to fall on the expatriate population in the GCC, given its dependence on migrant workers, and this could result in the overall population declining by 10 percent in the UAE and Qatar and 4 percent in Saudi Arabia and Oman.
“Combined with visas depending on employment and lack of a social safety net, an expat exodus is likely as travel restrictions are eased… To date, departures have been limited due to restrictions on flights, but anecdotal evidence suggests demand to leave is high,” he said.
Remittance cuts
The threat of further job losses and salary cuts is also prompting those that are still employed to reduce remittances.
Selena Apary, who works for a company based in TECOM Dubai, said she might need to cut down on the allowance she regularly sends to her mother back home, given the uncertainty. “My salary has been cut more than once since the start of this pandemic. Our boss also fired some of my colleagues. So I don’t feel secure at the moment,” she said.
Cash transfers made by expats every month represent a lifeline that supports households in many low-income and developing countries. They provide much-needed tax revenues and help finance trade balances in recipient countries as well.
What rich countries can do
Remittance flows to low-income and “fragile” states in 2018 alone reached $350 billion, surpassing the value of foreign direct investments and representing the single most important source of income from abroad, according to IMF.
As of the last quarter of 2019, outbound remittances from the UAE increased by 1.8 percent or 0.7 billion dirhams compared to the same period of 2018, according to the country’s central bank. Money transfers coursed through the exchange houses registered an increase of 7.2 percent or 2.2 billion dirhams during the same period.
However, the World Bank said that remittance flows around the world are expected to drop by 20 percent this year or about $100 billion.
The IMF said that the downside effect of remittances drying up due to the financial impact of COVID-19 calls for an “all-hands-on-deck response” not just for the sake of the poor countries receiving the remittances, but for the rich ones as well.
“The global community must recognise the benefit of keeping migrants where they are, in their host countries, as much as possible. Retaining migrants helps host countries sustain and restart core services in their economies and allows remittances to recipient countries to keep flowing, even if at a much-reduced level,” the IMF said.
The lender also urged donor states and international financial institutions to step in to help expat-source countries not only fight the pandemic, but also cushion the shock of losing the private income flows.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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