Page 20 - BNE_magazine_05_2020

20 I Companies & Markets Capital flows $bn vs. oil prices
bne May 2020
“Everyone is forecasting large recessions in the US, Europe and oil exporters. But these are the countries that account for the bulk of global flows in remittances,” says Elina Ribakova, deputy chief economist for the Institute of International Finance (IIF). “Oil exporters account for fifth of global remittances. So the oil price war and the dramatic collapse
in demand mean recessions. You can see what happened to outflows from Russia during the 2014 shock and this is likely to happen to others now.”
Remittances are most important for the very poorest countries. In both Tajikistan and Kyrgyzstan remittances account for just under 30% of GDP, amongst the highest in the world, followed by Moldova with 15.2%. Ukraine remittances made up 11.8% of GDP in 2019 and remittances in Armenia, Montenegro and Albania all make up about 10% of GDP.
Ukraine is currently running a balance of trade deficit of around $6bn, as it imports roughly $2bn worth of goods more than it exports to both Russia and the EU as well as running deficits with several other large trade partners.
But the country’s current account has been in surplus or in deficit to the tune of a very modest $500mn-$600mn for most of 2019 thanks to the approximately $12bn a year migrant workers have been sending home – enough to comfortably cover the bulk of the trade balance shortfall.
It is not clear what affect the stop-shock is going to have
on remittances but if they were to halve in Ukraine’s case, that could blow a $6bn hole in its balance of payments that would put its already thin resources under a great deal more pressure. The government is already going to struggle to pay the $4.1bn of debt that matures this year without
a new IMF deal.
Already farmers in places such as Poland are in talks with the government to fly in thousands of labourers from Eastern Europe to prevent fruit and veg from rotting in the field.
Many more of these casual workers have just lost their jobs. The money they send home every month usually supports large extended families and accounts for a significant share of GDP in many countries. The poorest countries were already the most vulnerable to the current crisis but a collapse of their remittance inflows is going to make things a lot worse by causing a balance of payments crisis.
And remittances are going to take a double whammy, as not only are the big economies like Poland and Russia very reliant on this cheap supply of labour, but the oil exporting countries make up a disproportional share of migrant workers.
Selected countries, remittances in % GDP, 2019
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