Aiko Kikkawa Takenaka, James Villafuerte, Raymond Gaspar, & Badri Narayanan.
The coronavirus disease (COVID-19) pandemic risks devastating impact on economies around the world, including widespread unemployment and lower incomes. Toward the end of June 2020, workplace closures applied to 77% of country observations worldwide, albeit to a varying extent—9 countries still required strict closing of all but essential workplaces. Alongside the effects of the pandemic on international and domestic travel, trade, investment flows, and other productive activities, the Asian Development Bank (ADB) estimates employment in Asia and the Pacific to be lower by as much as 167 million person months should containment measures last 6 months from when the outbreak first intensified (ADB 2020). Job cuts in the region are reducing wage income, with estimates of the decline projected to range from $359 billion to $550 billion. Migrant workers may be among the hardest hit groups.
Migrants originating from Asia and the Pacific account for 33% of migrant workers worldwide in 2019 (Figure 1a), the largest share. Major destination regions for Asian migrants included Asia (35%), the Middle East (27%), Europe inclusive of the Russian Federation (19%), and North America (18%). All of these regions have been devastated by the economic impacts of the COVID-19 pandemic, with economic output in these economies projected to contract from 6.7% to 10.2% in 2020. Remittances to Asia and the Pacific, amounting to $315 billion in 2019, are an important and stable source of income for families back home and help strengthen external financing—alongside foreign direct investment and tourism receipts—in many developing economies. They boost general consumption as well as investment and help sustain government debts by contributing to the foreign currency revenue base.
The COVID-19 crisis has suppressed global demand for oil, causing the recent collapse in oil prices, an additional blow to petrol-heavy economies such as the Russian Federation and in the Middle East, major hosts to Asian migrants, especially from Central Asia and South Asia. The decline in oil prices, which started in the second half of 2014 and dipped below $40 per barrel by the end of 2015, was associated with the same year decline in remittances from oil-producing countries, particularly from the Russian Federation (Barne 2016). The value of remittances from the Russian Federation has fallen in Turkmenistan and Uzbekistan (47%), the Kyrgyz Republic (25%), Tajikistan (24%), and Kazakhstan (23%) in 2015.
General Agreement on Trade and Services Mode 4 or the temporary mobility of natural persons. The analysis assumes an endogenous change in the number of employed migrants based on changes in wage differentials between home and host countries. Remittances are kept as a fixed proportion to income earned by guest foreign workers in the host countries. In this regard, the shock from COVID-19 to remittances is transmitted three ways:
• through the decline in GDP growth of all countries (source and host) which affects the wage differential and the employment status of labor between source and host countries;
• through shutdown of economic activities which leads to widespread job losses, including foreign workers in host economies;
• through the fall in the demand for, and prices of oil, which affects oil sector production. These shocks affect employment and wages by sector, which indirectly affects the wages and income earned by all labor types, which include foreign workers. In turn, remittances fall along with the decline in income earned by foreign workers.
The analysis from this brief involves two scenarios. The “baseline” scenario was obtained from the long-containment scenario of the COVID-19 economic impact assessment discussed in ADB Policy Brief 133 (ADB 2020). Under this scenario—which anticipates country-specific declines in tourist arrivals, domestic consumption, investment, and production, and increase in trade costs—it takes about 6 months for economies to get their domestic outbreaks under control and to start normalizing economic activities. It is also assumed that the economic impact of COVID-19 dissipates halfway in the last 3 months of the outbreak. Moreover, we also added the effects of lower demand for prices of oil in the baseline scenario, which amplifies the hit to GDP.
The “worst-case” scenario assumes that the domestic outbreak control and resumption of economic activities take a year’s time. It also assumes that the economic impact of COVID-19 persists throughout the year and dissipates halfway in the last 3 months of the outbreak.