Page 26 - IB August 2020

Economy Economy

NOW IS THE TIME TO REDUCE

REMITTANCE COSTS

By Pär Liljert and Rose Payne

Last year, global remittances overtook foreign direct invest-
ment as the biggest inflow of money into developing coun-
tries. COVID-19 is expected to reduce the amount of global
remittances in 2020 by 20%. This sharp decrease will be a seri-
ous problem for countries like Tonga, Samoa, Kiribati, Fiji and
Tuvalu, where remittances represent one of the main sources
of hard currencies needed for international trade. In Tonga,
remittances represent some 40 per cent of GDP – the highest Digital remittance channels like mobile money wallets are
proportion in the world. cheaper to maintain as they don’t require a network of physi-
Many families rely on those remittances for basic living cal agents. If remittance service providers are supported
expenses such as housing, food, school fees and medical care. to continue developing digital channels then we can expect
Reduced remittances also have a knock-on effect on local to see a further reduction in the cost of remittances in the
economies through decreased spending. As a result of the Pacific.
COVID-19 pandemic, economies throughout the Pacific are The Pacific remittance corridors are currently far from the
already suffering from the global slowdown or shutdown of UN Sustainable Development Goal 10.c of reducing transaction
industries, particularly tourism. costs to under 3 per cent. The average cost of sending money
The Director General of the Vanuatu Ministry of Finance from New Zealand to Tonga, for instance, was almost 10%
and Economic Management, Mr Letlet August, expressed his in the second quarter of 2020. Reducing the cost of sending
concern about a potential decline: remittances will cushion the downward trend of the volumes
“In Vanuatu, we are acutely aware that a reduction in sent home due to the impact of COVID-19. A good example of
remittances can have major ripple effects across our local such an approach comes from Fiji where Vodafone has com-
communities and economies and can result in a decrease in mitted to making remittances through their M-PAiSA Mobile
productive investment, consumption spending and access to Money app fee-free for a period of two months. As a result,
education and health services. Lockdowns, travel bans and transactions per month rose from 6,500, with a cumulative
physical distancing measures in response to the crisis have value of U$900,000 in March, to 25,000 in June with a cumula-
disproportionately affected the migrant workers, who have tive value of around U$3.2 million.
found themselves stranded unable to return to their place of The Pacific Financial Inclusion Programme, which supported
work or their communities of origin.” Vodafone with its initiative in Fiji, is now preparing to expand
This is why, in the past few weeks, the Pacific Islands Forum this approach to Tonga to work with the Tonga Development
Secretariat and the governments of Vanuatu, Tonga and Fiji Bank to further develop their digital channels, as well as on a
joined a global call to action to policymakers, regulators and campaign to significantly reduce the costs of remittances on
remittance service providers to improve migrants’ access to the corridor between Australia, New Zealand and Tonga.
sending and receiving remittances, and to reduce transfer Compliance has been identified as a key cost for remittance
costs during the ongoing COVID-19 pandemic. The call to service providers. A decline in corresponding bank relation-
action was spearheaded by the governments of Switzerland ships is driving up costs and creating barriers for service
and the United Kingdom, and supported by the United Nations providers. Risk-based due diligence, where the level of checks
Capital Development Fund, the United Nations Development for customers identified as low risk are reduced, could help
Programme, the global knowledge partnership on migration migrants to access services more easily and help service pro-
and development KNOMAD, the World Bank, the International viders to reduce costs. The development of regional, technol-
Organization for Migration (IOM), the International Association ogy-based, Know-Your-Customer solutions would also increase
of Money Transfer Networks and the International Chamber of banks’ confidence in money transfer operators.
Commerce. In the longer term, the situation calls for increased regional
Previously seasonal workers tended to send remittances in cooperation and coordination to make it as cheap and as easy
cash, with receivers also collecting cash. Lockdown measures as possible to send remittances home.
in both the sending and receiving locations have made this
more difficult. Data collected by the IOM found a significant This article appeared first on Devpolicy Blog (devpolicy.
shift to digital remittances since March 2020. For instance, org), from the Development Policy Centre at The Australian
the Reserve Bank of Fiji recently reported that remittances National University.
utilising digital channels increased by 68 per cent (from
F$2.75 million to F$4.62 million) from March to April 2020. editor@islandsbusiness.com

26 Islands Business, August 2020