Standard Chartered Bank economists Madhur Jha and Ethan Lester assess how the conflict in the Middle East could affect global remittances. They argue that the Gulf Cooperation Council (GCC) economies are key sources of remittance flows to countries such as Egypt, Pakistan, the Philippines, Bangladesh and Sri Lanka. Although the non-oil impact is perceived to be less than that of Covid-19, a prolonged conflict could result in expatriate relocation and weaker remittance flows.
Risk of money transfers commissioned by the GCC in a conflict situation
“The sustained energy price shock poses the greatest risk to the global outlook and could push the global economy into recession if it persists. Our concerns are exacerbated by physical disruptions to oil and gas supplies that are already beginning to impact the operations of many economies, particularly in Asia. Disruptions to the supply of other key products flowing through the Strait of Hormuz also threaten many downstream mining activities.”
“In this note, we highlight other broader implications that may become more apparent over time if the conflict persists. The Middle East, especially the GCC economies, hosts large numbers of expatriates who make significant personal remittances, strengthening the balance of payments (BoP) position for other economies. The Middle East is also increasingly becoming a destination as well as a source of international travel and tourism.”
“The impact of the ongoing conflict on remittances is ambiguous. During the Covid-19 pandemic, initial multilateral estimates assumed a sharp decline in remittances (20-40% decline) due to the sudden shutdown of activities. Surprisingly, however, remittances only declined by a modest 2.4% YoY in 2020 for several reasons.”
“The non-oil economic impact of this conflict is unlikely to be comparable to what we have seen during Covid-19, given how extreme the effects of the pandemic have been. There is also limited evidence so far of any significant withdrawal of emigrants from the region. However, if the conflict persists, it increases the risk of a more significant relocation of emigrants from the region as remittances decline.”
(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)
