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UAE remittances business set for rebound
The global slump will wipe $110 billion from the money sent home by around one billion workers overseas in 2020.
Remittances from the UAE, one of the world's leading source markets, is forecast to drop by 10 per cent this year, at a scale far lower than the worldwide average decline of 20 per cent, underscoring the resilience of the Arab world's second largest economy, forex experts said.
The World Bank estimates the global slump will wipe 20 per cent - or $110 billion - from the money sent home by around one billion workers overseas in 2020 due to the economic crisis triggered by the pandemic and shutdowns.
While the total value of global remittances reached $714 billion, remittances by migrant workers reached an all-time high of $554 billion in 2019, the World Economic Forum said. The predicted fall in remittances this year will well exceed the $16.2 billion fall recorded in 2009 following the global financial crisis, the WEF said.
Rashed A. Al Ansari, CEO, Al Ansari Exchange, said the coronavirus pandemic has managed to leave a significant impact across most of the industries and the remittance and currency exchange sector is not excluded.
"Although the World Bank and other reports expect remittance around the world to fall by 20 per cent this year, we can estimate that the drop in remittances from the UAE should not exceed 10 per cent this year compared to the same period in 2019."
In 2019, expats from the UAE remitted Dh165 billion, down marginally by 2.4 per cent from the previous year's total of Dh169.2 billion, according to figures released by the Central Bank of the UAE. A significant part of the remittances was sent to India, followed by Pakistan, Philippines, Egypt, UK and Bangladesh.
Al Ansari said the relatively less adverse impact on remittance business comes as a result of the UAE government's balanced approach in managing the pandemic and minimise its effect on the state of the economy in general.
"Throughout April, we witnessed a noticeable decrease in remittances but things slowly picked up in May and June, during which the drop did not exceed 10 per cent on average as compared to the same period in 2019. We will come to know the exact impact once the UAE Central Bank's report for the second quarter of the year is published."
"As for the third quarter, we expect an improvement in the remittance industry as businesses start to go back to normal operations. We also expect to see a short-term spike as we approach Eid Al Adha, when people usually send money to their families abroad to celebrate this holy occasion," said Al Ansari.
"The second half of the year will be crucial in gauging how deeply the pandemic has affected the remittances industry," said Adeeb Ahamed, MD, LuLu Financial Group.
"The large-scale outflow of the GCC's migrant population, as well as continued travel restrictions, loss of jobs and reduction in wages across sectors, are all expected to affect volume of remittances in varying degrees. In addition, the continued restriction on travel and outdoor movements has severely affected the foreign exchange business", said Ahamed.
"We expect the economic recovery of the region to follow a V-shaped curve, with recovery of the sector pegged by early 2021, although this can only be said with certainty once we touch the bottom of this curve," said Ahamed.
Al Ansari said physical foreign currency exchange business is also expected to steadily pick up after the reopening of the airports and the return of the scheduled flights which will increase the demand for foreign currencies. "This comes after a significant decline in physical foreign currency exchange business by more than 80 per cent during the second quarter of the year. This can be attributed to the restrictions on travel, which led to a decline in tourism and travel activities and therefore the demand for foreign currencies."
Moody's Investors Service said economic stress in key source countries will weaken global remittances this year, hurting incomes, growth and external positions. It will raise credit risk in countries most dependent on such inflows.
"The countries that are most dependent on remittances are largely low- and middle-income economies, and we expect the decline in remittance will exacerbate the growth slowdown in these countries," said Christian de Guzman, a Moody's senior vice president. - email@example.com
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