Falling Remittances Amplify EMFX Vulnerabilities
(4 min read)
Deteriorating C/A positions are beginning to raise concerns over currency performance in some emerging markets. Lockdowns have triggered an unprecedented decline in exports and depressed demand will mean only a partial recovery in trade once economies reopen. Reliance on remittance inflows to offset trade deficits leaves several EM economies decidedly vulnerable, most notably the Philippines, Mexico and India.
Remittances Exceed FDI in Many Countries
Remittances inflows reached a record high of $554bn last year and overtook FDI as the main source of external financing in EM. COVID-related job losses and border closures are expected to cause huge disruption to these flows with migrant workers particularly vulnerable during a crisis.
India was the world’s largest recipient of remittance inflows last year with overseas workers sending $83bn back home. China ($68bn), Mexico ($39bn) and the Philippines ($35bn) were the next largest recipients. But of course, as a share of GDP the ranking is very different with small countries (such as Tonga and Haiti) at the top. And even for the larger economies the importance on remittances as a financing item depends on the structure of the C/A.
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