Aug 07, 2020 Last Updated 5:12 AM, Aug 6, 2020

Remittance flow falling victim to the COVID-19 pandemic was anybody’s guess.  It was only a matter of time before this realisation would hit global economies, and drastically, in most cases.  It was not until late April that news of an anticipated drop-off came as the World Bank forecasted a dismal 20 per cent decline in global remittances for 2020, the largest in recent history.  But it is not known if a second wave of the pandemic, now underway in several parts of the world, had been factored into the modelling at the time, considering that this would worsen forecasts by any measure.

Pacific Island Countries are going to be especially hit hard as remittance flows in the East Asia and Pacific Region are expected to contract by 13 per cent.  A number of these countries are among the largest recipients of personal remittances relative to the size of their economies with Tonga topping the list at 40.7 per cent. In the case of Fiji, as recently noted by the Reserve Bank of Fiji Governor, Mr Ariff Ali, personal remittances constitute the second largest foreign exchange earner after tourism and it raked in just below FJ$600m in 2019; equivalent to 5 per cent of GDP.

More recent analyses based on data provided through the Reserve Bank of Fiji’s Enhanced General Data Dissemination System online showed a decline in personal remittances of about 2.4 per cent to $233.2 million cumulative to May 2020, compared to a 10.1 per cent growth in the corresponding period in 2019.  This outcome was largely driven by declines in gifts, maintenance and donations (-2.2 per cent) and personal receipts (-0.2 per cent) which more-than offset a marginal increase in immigrant transfers (+0.02 per cent).  While these trends might lend support to the World Bank’s forecasts of what is to come by the end of the year, there has been one development that surprised many—positively!

Since the height of what might be considered to have been the first wave of COVID-19 earlier this year, mobile money remittance channels took to the forefront of sustaining these lifelines as lockdowns, social distancing rules and deterrents to the use of cash catalysed a shift towards digital services on both sending and receiving ends.  For instance, inward remittances through Vodafone’s M-PAiSA—one of two mobile money service providers in Fiji—more than doubled within two months to FJ$4.5 million in April and is anticipated to grow further for the rest of the year.  In comparison, total remittances recorded a 42 per cent drop over the same period.  While inward remittances through mobile money have been among the least costly methods of sending money from Australia, New Zealand and the US, flows through these channels have long been only a fraction relative to total personal remittance flows.  The observed pandemic-induced boost to this service represents both a historic and promising development in advancing the uptake of digital financial services.

Recognising the lifeline that these digital remittance channels sustained, the Pacific Financial Inclusion Programme engaged a partnership with Vodafone to waive fees on both its international and local remittance channels for two months from mid-May which is anticipated to accelerate the growth of flows through these channels even further.  And especially where mobile money services offer recipients an ecosystem of making payments safely, such as through scanning quick response codes at a distance from merchants and bill payments remotely through mobile, a boom in the use of these services is expected to be sustained for a while as signs of a return to normalcy is shrouded by uncertainty. 

These developments in mobile money services have highlighted the importance of these digital channels in enabling access to cost effective and efficient financial services.  While the challenges that the pandemic has brought may be unprecedented, mobile money services are no strangers to crises, having been leveraged previously to provide assistance during major natural disasters and assist in disbursements of allowances to tertiary students under scholarship or loan schemes. 

The challenge for central banks going forward would be to ensure that their regulatory environment remain conducive to these services; in particular, by ensuring that risk-based due diligence measures are applied to maintain uninterrupted access to what is now becoming an increasingly essential channel.  This would require dialogue between remittance service providers and even regulators to ensure that anti-money laundering rules are appropriate to these channels and are harmonised to prevent frictions on both sending and receiving ends. 

Central banks are encouraged to address barriers to genuinely innovative solutions such as FinTech which can enable more efficient and cost-effective options for consumers.  Exploring and facilitating public-private partnerships to expand connectivity and further reduce the costs of receiving remittances are also suggested.  In addition, central banks may consider ways of raising the profile of these channels and enhance financial as well as digital literacy so as to deepen access across previously-excluded segments of society and to counter exclusion driven by increased digitisation of these services.  Now, more than ever, is a critical time to adapt these lifelines to the new normal in order to keep remittances flowing.  It would be interesting to learn about the experiences of other PICs via the Pacific Forum, among others.

Eserani Munivai is an Analyst with the Financial System Development Unit, Financial System Development Group, Reserve Bank of Fiji. The views expressed in this article are that of the author and do not necessarily represent the position of the Reserve Bank of Fiji. 

This article was originally published on the Pacific Forum, a capacity building platform for South Pacific central banks, including Fiji, PNG, Solomon Islands, Vanuatu and Timor Leste. For more on this Griffith University program visit SPCCB or email the convenor: p.sharma@griffith.edu.au

Papua New Guinea’s Treasurer, Ian Ling-Stuckey says his country has not had “an economic crisis of such complexity or magnitude since World War 2.” Samoa’s finance minister Sili Epa Tuioti calls it a “social and economic tsunami.” The language being employed by institutions and governments in responding to the economic impact of COVID-19 stresses the historic moment we are living through.

The response of international organisations and donor partners to assist Pacific island economies has been swift, although details are still to be ironed out given the pace with which the pandemic is developing and morphing, and the pervasiveness of its impacts across the globe.

Central to that detail will be the form of that assistance; and whether it’s concessional loans, grants, debt forgiveness or a complex combination of all three and more.

What does the crisis mean for tourism, remittances, digital transformation and more? Get your copy of Islands Business to find out more.

 

Growth forecasts

 

2019

2020

2021

Dependencies

Stimulus package

           

ADB Pacific member countries

 

0.3

2.7

Fiscal stimulus measures across the region of at least 10% of GDP

 

Cook Islands

5.3

-2.2

1

Fiscal stimulus measures of approx. 50% of GDP

US$34.7m

Federated States of Micronesia

3

1.6

-3 (WB)

3

0.5 (WB)

Pension fund reform

New capital projects

US$15m

Fiji

 

-4.9

-4.3 (WB)

3 (ADB)

1.9 (WB)

Improved business and investment climate

Limit debt exposure

Climate resilient infrastructure

US$500 million

French Polynesia

       

US$280m

Kiribati

2.4

1.6

1.8

Well managed, sustainable trust funds

 

Marshall Islands

3.8

2.5

-3 (WB)

3.7

1 (WB)

Pension fund reform

Easing of restrictions on travel and transport

 

Nauru

1

0.4

1.1

Well managed, sustainable trust funds

 

Palau

-3

-4.5

-6 (WB)

1.2

0 (WB)

Pension fund reform

Tourism recovery

 

PNG

4.8

0.8

0.2 (WB)

2.8

3.3 (WB)

Good management of public debt

US$1.6billion

Samoa

3.5

-3

-5 (WB)

0.8

0 (WB)

 

US$23.6milloon

Solomon Islands

2.6

1.5

-6.7 (WB)

2.7

-0.3 (WB)

Large infrastructure projects provide some buffer

Reform of tax system

 

Tonga

3

0

0.5 (WB)

2.5

3.2 (WB)

Tourism recovery

Accelerated rehabilitation and recovery post TC Gita

US$25m

Tuvalu

4.1

2.7

3.2

Well managed, sustainable trust funds

 

Vanuatu

2.8

-1

-8 (WB)

2.5

6 (WB)

Benefits of labour mobility schemes are widespread, sustainable

 

Source: ADB Outlook 2020, World Bank, national governments

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