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RemittancesandSocialSafety

NetsduringCOVID-19:Evidence

fromGeorgiaandtheKyrgyz

Republic

NordineAbidi,MehdiAkhbari,BasharHlayhel,andSahraSakha

WP/23/94

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RemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublicPreparedbyNordineAbidi,MehdiAkhbari,BasharHlayhel,andSahraSakha*

AuthorizedfordistributionbyPelinS.Berkmen

March2023

IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.

ABSTRACT:RemittanceflowsinemergingmarketanddevelopingeconomiesweresurprisinglyresilientduringtheCOVID-19crisis,providingmuch-neededincomesupportforremittance-receivinghouseholds.However,householdswereimpacteddifferentlyacrossincomedistributions.Usingnovelhigh-frequencyhouseholdpaneldataforGeorgiaandtheKyrgyzRepublicandadifference-in-differencesapproach,wefindthatashouseholdincomefellduringthepandemic,remittance-receivinghouseholdsweremoreaffectedthannon-remittance-receivinghouseholds.Importantly,wefindthattheincomesofpoor,remittance-receivinghouseholdsintheKyrgyzRepublicweremoreadverselyaffectedthantheirnon-remittance-receivingcounterparts.Incontrast,inGeorgia,affluentremittance-receivinghouseholdsexperiencedmoresignificantincomedeclinesthanpoorremittance-receivinghouseholds.Thisheterogeneousimpactcanlargelybeexplainedbyvariationsintheeffectivenessofsocialsafetynetsinthetwocountries.Ourresultshaveimportantpolicyimplications.Althoughremittancesremainedresilientduringthepandemic,theyaffectedhouseholdsdifferently.Assuch,policymakersshouldprioritizeaddressinggapsinsocialsafetynetstosupportthemostvulnerable.

RECOMMENDEDCITATION:AbidiN.,M.Akhbari,B.Hlayhel,andS.Sakha(2023).“RemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic”,IMFWorkingPaperNo.23/94,May2023.

JELClassificationNumbers:D1,F24,O11

Keywords:COVID-19;Remittances;CentralAsia

nabidi@;akhbari@;bhlayhel@;

Author’sE-MailAddress:

ssakha@

1WethankYasserAbdih,TroyMatheson,andCesarSerraforhelpfulcomments,BronwenBrownforeditorialsupport,andGintareGedrimaiteandMariaGaetskayaforproductionsupport.

WORKINGPAPERS

RemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

PreparedbyNordineAbidi,MehdiAkhbari,BasharHlayhel,andSahraSakha1

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

INTERNATIONALMONETARYFUND2

Contents

Introduction

3

Data

5

DescriptiveStatistics

6

HeterogeneityinSourcesofRemittances

6

StringencyIndexforRemittance-SendingCountries

6

DifferencesinSocialSafetyNets

7

SocioeconomicCharacteristicsofHouseholds

8

EmpiricalFramework

11

Results

12

EffectsofCOVID-19onHouseholdIncome:QuarterlySpecification

12

DistributionalEffectsofCOVID-19onRemittance-ReceivingHouseholds

13

RoleofSocialTransfersinMitigatingAdverseIncomeEffects

14

TheEffectofStringencyinRemittance-SendingCountriesonReceivingCountries

16

Robustness

17

DividingHouseholdsintoPoorandRich(UsingMedian)

17

UsingConsumptioninsteadofIncometoDefinePoor,Middle-income,andRich

17

ConclusionandPolicyImplications

19

References

20

Annex

22

TheEffectsofCOVID-19onHouseholdsIncome:Annualspecification

22

FIGURES

1.SourcesofRemittances:GeorgiaandKyrgyzRepublic,2019

6

2.AverageOxfordStringencyIndexforRemittance-SendingCountriestoGeorgiaandKyrgyzRepublic,20207

3.CoverageandAdequacyofSocialTransfers:GeorgiaandKyrgyzRepublic

7

4.Remittances:GeorgiaandKyrgyzRepublic,2020

9

TABLES

1.SourcesofIncome:GeorgiaandKyrgyzRepublic,2019–20 Error!Bookmarknotdefined.

2.CharacteristicsofRemittance-ReceivingandNon-Remittance-ReceivingHouseholds..Error!Bookmarknotdefined.

3.EffectofCOVID-19onQuarterlyIncome:GeorgiaandKyrgyzRepublic Error!Bookmarknotdefined.

4.EffectofCOVID-19onQuarterlyIncomebyIncomeGroup:GeorgiaandKyrgyzRepublic

14

5.EffectofCOVID-19onSocialTransferstoPoorHouseholds:GeorgiaandKyrgyzRepublicError!Bookmarknotdefined.

6.EffectofOxfordStringencyIndexinHostCountryonIncomeinDestinationCountryAcrossIncomeGroups

..............................................................................................................................Error!Bookmarknotdefined.

7.EffectofCOVID-19onQuarterlyIncome(Below/AboveMedian):GeorgiaandKyrgyzRepublic............Error!

Bookmarknotdefined.

8.EffectofCOVID-19onQuarterlyIncome(ConsumptionInsteadofIncome):GeorgiaandKyrgyzRepublic

..............................................................................................................................Error!Bookmarknotdefined.

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

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Introduction

Remittances—moneysenthomebymigrantworkersinforeigncountries—provideafinanciallifelinetomillionsworldwide.Thesefundsrepresentacriticalsourceofincomeforlow-incomedevelopingcountriesandemergingmarketeconomies,oftenexceedingtheamountofofficialdevelopmentassistanceandforeigndirectinvestment.1

DespitetheCOVID-19pandemic,globalremittanceflowsremainedresilientin2020,registeringasmallerdeclinethaninitiallyprojected(Kpodarandothers2021;WorldBank2021)duetobetter-than-expectedeconomicconditionsinhostcountries,ashiftinflowsfromcashtodigitalandfrominformaltoformalchannels,andcyclicalmovementsinoilpricesandcurrencyexchangerates(WorldBank2021).

Still,thestrengthofaggregateremittancesduringthepandemiccouldmaskimportantdifferencesinflowsacrosshouseholds.Forexample,theremaybesignificantheterogeneityamongthetypesofimmigrantssendingremittances.Furthermore,thepolicyresponseofthehostcountrytocontainthehealthcrisis(containmentmeasuresorpolicysupport)couldhaveaffectedremittanceflowsduringthepandemic.Infact,Kpodarandothers(2021)foundamorepronounceddropinremittancesfromcountrieswithstrictercontainmentmeasures.

Moststudiesonthebehaviorofremittancesduringthepandemicrelyonbalanceofpaymentsdataanddonotconsiderthedistributionalimpactofremittancesonhouseholdincomes.Dinarteandothers(2021)andJyoti(2021)observedasignificantincreaseinformalremittancestoMexicoandBangladesh,respectively,despiterecordunemploymentinremittance-sendingeconomiesduringthepandemic.Similarly,Kpodarandothers(2021)foundthatremittancesshowedsignsofresilienceafteraninitialdecline.Oneofthefewpapersusinghouseholddata,ShimizutaniandYamada(2021),foundasignificantbuttransitorydropinremittancestoTajikistan.Whileallthisevidencesuggestsaggregateremittanceswereresilientearlyinthepandemic,someremittance-receivinghouseholdsmayhavebeenmoresusceptibletodecliningremittances,andsocialpoliciesmayhaveplayedastabilizationrole.Ourpaperaimstofillthesegaps.

Weusenovelhigh-frequencypanelhouseholddataforGeorgiaandtheKyrgyzRepublictoassesstheimpactofremittancesonhouseholdincomesintheimmediateaftermathoftheonsetoftheCOVID-19pandemic.Thepandemicaffectedthetwocountriesdifferentlyduetotheirdiversecharacteristics.Althoughbothrelyheavilyonremittances(31percentofGDPintheKyrgyzRepublicand13percentinGeorgia),remittancesfromRussiaaccountforasignificantlyhighershare(84percent)intheKyrgyzRepublicthaninGeorgia(25percent).2Furthermore,morepoorKyrgyzhouseholdsreceiveremittancesthanGeorgianones.Inaddition,KyrgyzmigrantworkerstendtocomefromhouseholdswithlowereducationlevelsthanthosefromGeorgia.Thecoverageanddesignofthetwocountries’socialsafetynetsalsodiffer,withimplicationsformitigatingtheadverseeffectsofremittancedeclinesduringthepandemic.

1Forinstance,remittanceflowsin2018tolow-incomeandfragilestatesreachedabout$350billion,surpassingforeigndirectinvestment,portfolioinvestment,andforeignaid(WorldBankIndicators2022).

2TheKyrgyzRepublic’sheavyrelianceonremittancesfromRussiaislikelytoexacerbateafallinremittancesanditsimpactonwelfare.AsimulationexerciseshowsthatthepotentialdeclineinremittancesfromRussiainthemediumtermwillworsenpovertyandinequalityinboththeKyrgyzRepublicandGeorgia,withamoresignificanteffectontheKyrgyzRepublicduetoitsgreaterrelianceonremittances(IMF2022).

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

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Tothebestofourknowledge,thisstudyisthefirsttoutilizepanelhouseholddatasetstoprovideadetailedpictureoftheimpactofthedeclineinremittancesduetotheCOVID-19pandemiconhouseholdsacrossincomedistributions.Ourdatasethasseveraladvantages.First,usingnationalhouseholdsurveydata(insteadofaggregatebalanceofpaymentsdata)allowsustomeasuretheeconomicwell-beingofhouseholdsandidentifypotentialrisks(Dinarteandothers2021;Jyoti2021).Additionally,nationalhouseholdsurveydatasets,althoughpronetopotentialunderreportingofremittances,aremorelikelytoprovideaclearpictureofthebehaviorofremittancesduringeconomicshocks(Roberts2004;Acosta2006;Acostaandothers2006;FreundandSpatafora2008).Ourlongitudinaldatasetalsoallowsustouseanempiricalapproachtoestablisharelationshipbetweenremittancesandhouseholdincomesinamorerigorouswaybyallowingustocorrectforunobservedfactorsandaddressimportantendogeneityissues.Finally,whilerecentresearch(forexample,ShimizutaniandYamada2021)examineshouseholdincomesqualitatively,ourdatasetsallowustoquantitativelyexplorethepandemic’simpactatthehouseholdlevelandacrossdifferentincomegroups.

Theempiricalstrategyreliesonadifference-in-differencesapproachthatidentifiestheeffectofthepandemicshockacrosshouseholds(similartoShimizutaniandYamada2021).Likeotherstudies,wefindthattheCOVID-19pandemicledtoadecreaseinremittanceflowsbuttheimpactoftheshockwasshort-lived.Wealsofindthatremittancereceiversweremoreseverelyaffected,irrespectiveoftheirpositionintheincomedistribution.Poorremittance-receivinghouseholdsintheKyrgyzRepublicwereaffectedworsethantheirnon-remittance-receivingcounterparts.Incontrast—andmainlyreflectingthemitigatingimpactofsocialtransferstothepoor—affluentremittance-receivinghouseholdsinGeorgiaexperiencedmoresignificantincomedeclinesthantheirpoorcounterparts,underscoringthecriticalroleofsocialtransfersinmitigatingadverseshocks.

Fromapolicyperspective,theunexpectedresilienceofremittanceflowsduringtheCOVID-19crisisunderscorestheimportanceoftimelyhigh-frequencydatatoassesstheimpactofeconomicdevelopmentsonvulnerablepopulations.Ourresultssuggestthateffortstostrengthensocialprotectionthroughbetter-targetedsupportareimportanttomitigaterisks.Ifmigrationandremittancesunexpectedlydecline,well-targetedcashtransferscansupportremittance-receivingandvulnerablehouseholds.Returningmigrantscanbenefitfromtrainingtoreenterdomesticlabormarkets.Reducingthecostofmoneytransfersthroughdigitalizationeffortscanfacilitateremittanceflows.Adequateandtimelypolicyresponsesfrombothremittance-sendingandremittance-receivingcountriesarecriticaltohelpingmigrantworkersimprovetheresilienceofremittanceflows.

Thispaperisorganizedasfollows.SectionIIpresentsabriefoverviewofthedata.SectionIIIdetailsthesourcesofremittanceflowsandthesocioeconomiccharacteristicsofhouseholdsreceivingremittances.SectionIVdescribestheempiricalmodel,andsectionsVandVIpresenttheresultsandrobustnesschecks.SectionVIIconcludeswithpolicyimplications.

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

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Data

Ouranalysisemploys2019and2020householdsurveydatafortheKyrgyzRepublicandGeorgia.Thesedatacontaindetailedinformationonincomesources3,familycharacteristics(numberoffamilymembers,theirage,employment,education),placesofresidence(urban,rural),andconsumption(food,services).

Thethreemainvariablesweusearetotalincome,remittances,andsocialtransfers.Thedatasetsforbothcountriesincludedetailedinformationonincomesources4.RemittancesaredefinedintheGeorgiasurveyastheaverageamountofremittancesreceivedfromabroadoverthepastthreemonths.IncaseoftheKyrgyzRepublic,remittancescorrespondtothesumoftwosurveyquestions:(1)“WhatincomedidyourfamilyearnfromincomeactivitiesoutsidetheKyrgyzRepublic?”and(2)“WhatincomehasyourfamilyreceivedfromrelativesandfriendslivingoutsideoftheKyrgyzRepublic?”.

Thetwocountriesdefinesocialtransfersslightlydifferently.FortheKyrgyzRepublic,thesocialtransfersvariablecomesfromthesurveyquestion:“Whatincomedidyourfamilyreceivefromstandardmonthlybenefitsforlow-incomefamiliesandindividuals?”.ForGeorgia,thesocialtransfervariableincludesallgovernment-providedsocialtransfers(forexample,pensions,low-incomeassistanceprograms,andscholarships).WhilethedefinitionofsocialtransfersforGeorgiaincludesmorethanjustlow-incomeassistanceprograms,weassumethatthisvariableisagoodproxyforlow-incometransferssinceouranalysisonlycoverspoorhouseholds.5

Eachhouseholdhasauniqueidentifierinbothdatasets,allowingustotrackthemovertime.ForGeorgia,ourdatasetsincludeinformationoneachhouseholdeveryotherquarterfortwoyears(atotaloffourobservations).FortheKyrgyzRepublic,wehavemonthlyincomedataforeachhousehold.Weperformouranalysisatquarterlyfrequenciesandaggregatedataforbothcountriesaccordingly.Dataonhouseholdcharacteristicsareannual.Intotal,wehavedatafor11,636householdsinGeorgiaand5,270householdsintheKyrgyzRepublic;4,161and4,739householdsformabalancedpanel,respectively.

Allnominalvariablesareconvertedto2011PPPUSdollarstoensurecomparability.FollowingtheWorldBank’smethodologytocomputepovertyandinequalitystatistics,weconvertallnominalvariablesto2011localcurrencyusingdatafromtheIMF’sWorldEconomicOutlookdatabaseandthenconvertthemtoPPPdollarsusingdatafromtheWorldBank’sInternationalComparisonProgram.

3UnderreportingofincomeisapersistentchallengeinmanycountriesandisnotuniquetotheCOVID-19pandemic.Ourdifferences-in-diffrencesidentificationstrategyeliminatestheeffectofincomeunderreportingofourresultsifitfollowsthesamepatternbeforeandafterthepandemic.

4Dataonconsumptionisnotavailableforbothcountriesonaquarterlyfrequency,whichiswhywefocustheimpactonincomeratherthanconsumption.

5Pensionsdonotconstituteasignificantshareofincomeatthelowerendoftheincomedistribution.Moreover,theyarerelativelystableovertime,sotimetrendswillnotadverselyaffectourdifference-in-differencesidentificationstrategy.

INTERNATIONALMONETARYFUND6

3.59.8

24.7

11.1

50.9

DescriptiveStatistics

HeterogeneityinSourcesofRemittances

Figure1showsthesourcesofremittancesforGeorgiaandtheKyrgyzRepublicin2019.Whereas84.2percentofremittancesintheKyrgyzRepublicoriginatefromRussia,theshareisbelow25percentinGeorgia.OtherEuropeancountriesareGeorgia’sprimarysourcesofremittances(50.9percent).GeorgiaalsoreceivesasignificantshareofremittancesfromNorthAmerica.

Figure1.SourcesofRemittances:GeorgiaandKyrgyzRepublic,2019

1.SourcesofRemittancesinGeorgia

(Percentoftotalremittances)

2.SourceofRemittancesintheKyrgyz

Republic(Percentoftotalremittances)

15.8

84.2

RussiaEuropeNorthAmericaCCAOtherRussiaOther

Sources:IMFBalanceofPaymentsandInternationalInvestmentPositionStatisticsDatabase;CentralBankoftheRussianFederation;NationalBankofGeorgia;IMFstaffcalculations.

Note:EuropeancountriesinorderofsignificanceareItaly,Greece,Israel,Turkey,Germany,Ukraine,Spain,France,theUnitedKingdom,andIreland.NorthAmericancountriesaretheUnitedStatesandCanada,andotherCCAcountriesareKazakhstan,Azerbaijan,andArmeniainorderofsignificance.Thecountriesindicatedby“Other”areunknown.CCA=CaucasusandCentralAsia.

StringencyIndexforRemittance-SendingCountries

Figure2depictstheweightedaverageoftheOxfordStringencyIndex—ameasureofthetightnessofCOVID-19-relatedpolicyrestrictions—forthecountriesthatsendremittancestoGeorgiaandtheKyrgyzRepublic.6Thisvariableevolvedsimilarlyforbothcountriesinthefirsttwoquartersof2020.However,inthethirdquarterof2020,itdeclinedfortheKyrgyzRepublicwhileinthelastquarteritincreasedforGeorgia.ThisdivergenceresultedfromtighterrestrictionsinEuropeancountries(Georgia’sprimarysourceofremittances)andarelaxationofrestrictionsinRussia(theKyrgyzRepublic’sprimarysourceofremittances).

6Theweightsforeachsendingcountryaretheirsharesofremittancestothedestinationcountry.Thecalculationsignoreunknownsourcesofremittances.

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

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604020

0

Figure2.AverageOxfordStringencyIndexforRemittance-SendingCountriestoGeorgiaandKyrgyzRepublic,2020

100

80

60

40

20

0

Georgia,remittance-sendingKyrgyzRepublic,remittance-sending

Sources:Authors’calculationsusingdatafrom;NationalBankofGeorgia;IMFBalanceofPaymentsandInternationalInvestmentPositionStatisticsDatabase;CentralBankoftheRussianFederation.

Note:Theweightsforeachsourcecountryaretheirsharesofremittancestothedestinationcountry.Unknowncountriesareignoredinthecalculations.Dashedverticallinesindicatethebeginningsofquarters.

DifferencesinSocialSafetyNets

SignificantdifferencesexistbetweenGeorgiaandtheKyrgyzRepublicintheadequacyandcoverageofsocialtransfers.GeorgiadoessignificantlybetterthantheKyrgyzRepublicintermsofadequacy(thetotaltransferamountreceivedbybeneficiariesinthebottomquintileasashareoftotalincome),andcoverage(theshareofthepopulationinthebottomquintilereceivingsocialtransfers)ofsocialtransfers.About78percentofGeorgiansinthebottomquintileoftheincomedistributionreceivesocialtransfers.Incontrast,only54percentofthebottomquintileintheKyrgyzRepublicreceivesocialtransfers.Georgia’ssocialtransfersystemisthusmoreefficientonaggregate,makingitmorelikelytomitigatetheimpactofadecreaseinremittancesonincomesforremittance-receivinghouseholds.

Figure3.CoverageandAdequacyofSocialTransfers:GeorgiaandKyrgyzRepublic

1.Adequacy

KGZ

GEO

2.Coverage

100

80

60

40

20

0

KGZ

GEO

Source:Authors’calculationsbasedonhouseholdsurveydataforeachcountry.

Note:Thedatacorrespondtothelatestavailableyearforeachcountry.Coverageistheshareofthepopulationinthe

bottomquintilereceivingasocialtransfer;adequacyisthetotaltransferamountreceivedbybeneficiariesinthebottom

quintileasashareofthetotalincomeorexpenditureofbeneficiaries.CountryabbreviationsareInternational

OrganizationforStandardizationcountrycodes.

IMFWORKINGPAPERSRemittancesandSocialSafetyNetsduringCOVID-19:EvidencefromGeorgiaandtheKyrgyzRepublic

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ComparingthesourcesofincomeinGeorgiaandtheKyrgyzRepublichighlightstheimportantrolethatsocialtransfersplayedinmitigatingthepandemic’simpact(Table1).7Whilemostincomecategoriesforallincomegroupsacrossthetwocountriesdeclined,socialtransfersincreasedforallincomegroupsinGeorgia.However,theyremainedrelativelystableintheKyrgyzRepublic,whichtranslatedintoagreaterdecreaseinhouseholdincomeintheKyrgyzRepublicthaninGeorgia,particularlyforthepoor8.

Table1.SourcesofIncome:GeorgiaandKyrgyzRepublic,2019–20

1.Georgia

TotalSelfSocialOther

IncomeEmploymentEmploymentRemittancesTransfersIncome

2019

2020

2019

2020

2019

2020

Poor

Poor

Medium

Medium

Rich

Rich

108.57

107.51

238.98

230.68

556.31

506.87

27.76

25.58

99.72

88.35

288.13

267.26

9.80

8.77

26.28

20.99

60.65

44.00

2.39

2.56

7.96

5.61

30.27

22.96

43.80

44.29

58.01

67.51

54.19

67.25

24.82

26.31

47.00

48.21

123.06

105.41

2.KyrgyzRepublic

TotalSelfSocialOther

IncomeEmploymentEmploymentRemittancesTransfersIncome

2019

2020

2019

2020

2019

2020

Poor

Poor

Medium

Medium

Rich

Rich

140.58

133.45

233.93

221.78

476.50

446.64

47.47

47.52

95.33

89.58

185.10

177.46

23.15

22.25

41.34

37.82

64.31

55.15

3.93

2.93

5.57

5.06

31.07

24.16

20.99

19.20

31.19

30.47

72.21

72.24

20.44

18.36

38.86

36.01

106.34

98.94

Source:Authors’calculationsbasedonhouseholdsurveydataforeachcountry.

Note:Variablesareexpressedin2011PPPUSdollars.

SocioeconomicCharacteristicsofHouseholds

Remittanceflowsconstituteasignificantshareofincomeformanyhouseholdsandhelptoalleviatepoverty.TheshareofpoorhouseholdsthatreceiveremittancesishigherintheKyrgyzRepublicthaninGeorgia,withsharesinthebottomhalfoftheincomedistributionrangingfromabout8.5percentintheKyrgyzRepublicto

7Accordingtothe2022IMFArticleIVonGeorgia,theauthoritiesare“continuingtoimproveTargetedSocialAssistance—theprimarymechanismforsupportingvulnerablefamilies—byupdatingtheproxy-means-testingformulaanddigitalizingthesystemtomakeitmoreefficient”.Putdifferently,Georgia'sSSNincludesbothmeans-testedandcategoricalprograms,withmeans-testedprogramsprimarilytargetedathouseholdswithlowincomeandassets,andcategoricalprogramstargetedatspecificdemographicgroupssuchastheelderly,personswithdisabilities,andchildren.Inthe2022reportoftheIMFcalled“SocialSafetyNetsandPovertyintheKyrgyz