REMITTANCES: Brexit decision slows flow of migrant workers’ wages sent home

Britain’s decision to leave the EU is rippling through the global economy via an important but hidden channel: the money that migrant workers in the UK send home.

The World Bank estimates migrant workers sent back about $24.9billion last year, making Britain the fourth-largest source of remittances in the world.

The sharp fall in the value of sterling since the Brexit vote (it is down 14.6 per cent, 13.2 per cent, and 15.7 per cent respectively against the dollar, euro and zloty) means those remittances are suddenly worth less to the people back home who receive them.

The money Tibor, a 32-year-old Slovak architect, sends home from London each month not only supports his disabled mother and elderly grandmother, it is also building his family a home in the small village of Bela nad Cirochou in the east of his home country.

But since Britain’s vote to leave the EU this summer, the pounds he sends home are worth a lot less. “He is worried about the impact of Brexit,” said the architect’s grandmother Stefania, who declined to give her surname. “The plan was for him [to] come back home only after he retired.” But the hit to his income meant he was now “waiting until the situation is a bit clearer”, Stefania added.

Karolis Rudys has been working as an automotive engineer in the UK for two years, saving up to buy a house in his native Lithuania. He estimates his savings are now worth thousands of euros less than before the Brexit vote.

“It is not the end of the world but it is not a very pleasant feeling,” he said. He would need to become “a bit more creative about how to earn money”, he added, though that would not be easy.

Globally, remittance flows are three to four times larger than official development assistance, which makes them “really important for people in poor and middle-income countries,” said Vijaya Ramachandran, a senior fellow at the Center for Global Development, a US-based think-tank.

“Maybe migrants [in the UK] will work harder to make up some of that shortfall, but [given] the fall in the value of the pound, it is going to be hard to make up for all of that.”

The issue extends far beyond Europe. Nigeria, India and Pakistan are the top three recipients of remittances from the UK, excluding high-income countries with globally mobile workforces.

In South Asia, a region that has strong historic ties to the UK – a former colonial power – millions of people depend heavily on remittances from overseas workers. India, which received $3.6billion in remittances from the UK last year, is the world’s largest recipient of overseas money sent home by migrant workers, accounting for approximately 3.4 per cent of Indian GDP.

The only European economies to make the top 10 recipients of UK remittances are Poland and Hungary. Nevertheless, it is an increasingly important source of income in the “A8” eastern European countries since they joined the EU in 2004. The UK is the second-biggest source of remittances to the A8 countries after Germany. For example, they are now worth between 3 and 6 per cent of gross domestic product for Latvia, Lithuania and Hungary.

Some experts believe the fall in sterling – together with the predictions of higher unemployment in the UK – will prompt fewer people to move to the UK and more to leave.

Research by the UK’s Department for Work and Pensions suggests this is what happened during the 2007-09 financial crisis. The sterling-zloty exchange rate was tightly correlated with the outflow of A8 migrants over that period, although it is hard to disentangle any single cause since this was also a time when UK unemployment was rising sharply.

“I think migration from eastern Europe is quite likely to fall quite sharply over the next year or so and the exchange rate is one of the factors,” said Jonathan Portes, an economist at the UK’s National Institute of Economic and Social Research.