Post COVID-19, the South Asia-Gulf corridor, one of the world’s fastest growing migration corridors is passing through an existential crisis that could be long-lasting. With oil prices collapsing, the petrostates are experiencing huge revenue shortfalls and contracting economic activity.

They are laying-off migrant workers who have been the mainstay of their economies.

South Asian migrant workers

South Asians account for 15 million workers in these countries. The prospect now is for return migration back to India, Pakistan, Bangladesh, Nepal, and Sri Lanka which can only deepen the existing economic gloom in the region.

There are limited prospects of them returning to the Gulf.

To be sure, the South Asia-Gulf corridor has been buffeted by crises in the past like the Gulf war, the global economic crisis of 2007-08 and Nitaqat, whereby Saudi companies and enterprises are required to fill up their workforce with locals. But none of these entailed massive return migration. The on-going viral pandemic together with low oil prices, however, is different in triggering “unprecedented levels of reverse migration” according to experts on migration like Dr S Irudaya Rajan, Chair Professor, Ministry of Overseas Indian Affairs Research Unit on International Migration at the Centre for Development Studies, Thiruvananthapuram.

Remittances important for South Asian economies

Remittances are an important source of foreign exchange in South Asian economies, equivalent to 27.3 percent of Nepal’s gross domestic product (GDP), 7.9 percent in Pakistan, 5.8 percent in Bangladesh.

India received the largest amount of remittances in the region of USD 83 billion or 2.8 percent of its GDP last year, according to the World Bank.  In the state of Kerala, for instance, remittances of USD 14 billion are equivalent to 30 percent of the state’s GDP. The impact of lower remittance inflows on their economies would therefore be devastating.  The ranks of the jobless would also swell when these migrants return back home.

The hit on the remittance front in Nepal, Bangladesh and Pakistan will be most felt through higher imbalances in goods and services trade with the rest of the world. Financing this gap will be a serious policy concern as foreign direct investment inflows are declining in these COVID-19 times. So, too, are portfolio investments that rise in good times and fall in bad times. 

Research has established that remittances augment savings and investments of recipient households and help in poverty reduction. If such inflows reduce as expected, they would most certainly worsen distributional outcomes in South Asia.  

Some good news for South Asia

Paradoxically, however, remittances from South Asian migrants to their families are showing signs of resilience in recent months instead of declining. In Pakistan such transfers were unprecedented during the three months of June, July, and August amounting to USD 7.3 billion, up by 37 percent over a similar period in 2019 according to the State Bank of Pakistan.

In Nepal, too, after a sharp drop in April, there has been a noticeable improvement in June and July. In Bangladesh as well, there has been a higher level of transfers in June, July, and August, much more than the monthly average of USD 1.5 billion according to Bangladesh Bank. 

For such reasons, policymakers in Pakistan, Bangladesh and Nepal are cautiously optimistic that despite the uncertainties these inflows are unlikely to decline as much as the Asian Development Bank or World Bank is forecasting for this year and next.

Bangladesh in fact expects transfers to be even higher at USD 24.25 billion in 2020-21, when compared to USD 18.3 billion last year.

The dismal prospect, however, is that these rising transfers are not sustainable. A deceleration is likely as these workers are being laid off in large numbers in the South Asia-Gulf corridor. Higher transfers of their savings are being made in advance of their inevitable return.

Impact on India

India, for its part, is already feeling the impact of lower remittances. Transfers to the country declined by 8.7 percent during April-June 2020 over the corresponding three months in 2019. The World Bank expects such inflows to decline by 20 percent during the year as a whole, the biggest projected drop since 1980.

The impact will naturally be the most severe on states like Kerala which has two million migrants in South Asia–Gulf corridor. Not only is the state experiencing a rising COVID-19 caseload but the return of hundreds of thousands of migrants also strains the economy’s capacity to productively absorb them.

Interestingly, the state government in collaboration with the World Bank is thinking of issuing diaspora bonds to tap the savings of expatriate migrants, especially in the Gulf countries where their bank deposits earn near-zero percent interest, according to the Indian Express.

Such savings provide valuable resources for the state’s development. Making the diaspora a stakeholder in the state’s or country’s development is an idea whose time has come as the neighbourhood copes with the fallout of the crisis-ridden South Asia-Gulf corridor.  

(The writer is an economics and business commentator based in New Delhi. The views expressed are personal)