Migration: What Moves the Needle?
A look into the impact on credit profiles and ratings
Migration is as old as humanity itself. From ancient nomads to modern-day expatriates, the movement of people across lands and seas has shaped the societies of the world as we know it. But what drives people to leave their home? And how does this movement impact the receiving-country’s credit profile?
We broadly define migration as being legal and/or illegal movements of people – across a country’s internal or external borders. This article is focused more on illegal migration which encompasses both refugees and asylum seekers moving from their country of origin or residence to a recipient country, but there are elements of legal migration which come into the frame as well.
When we consider migration, key aspects of the host country’s credit profile come into play. We discover that migration and credit ratings are two interconnected phenomena and examine the extent to which migration flows move the needle to affect a sovereign’s credit profile. We look at the impact of migration on growth, the availability of resources to accommodate refugees if fiscal and physical space is limited, and competition for jobs if the job market is constrained. Susceptibility to events such as social and geopolitical factors are by their very nature less easily quantifiable but are nevertheless very sensitive particularly when election cycles swing around. We therefore choose our case studies: the UK, the US, and Ireland because they have elections either in 2024 or in 2025 and the temperature around migration in their geopolitical climate is elevated.
We make three key recommendations to better order the migration debate. Given that migration, both legal and illegal, and the associated challenges will be around for the foreseeable future, we expect that several governments will need to be prepared to put in place a few policies to properly address it.
Among these include:
Data collection and public communication on migration matters
Pursuing labor market integration where possible
Addressing housing availability induced in part by higher demand from migrants
In the final analysis, migration is an important geopolitical issue, and has significant implications mainly on the social and political aspects of the credit profiles of sovereigns. Migration policy has direct implications for sovereigns as demonstrated through the case studies in the article. We find that under normal circumstances, and in the context of a country’s overall budget, expenditure on refugees and asylum seekers alone is not usually large enough to move the needle sufficiently to have a material impact particularly on sovereign credit ratings. However, when migration issues are combined with pivotal events like a government shutdown, they could prove to be tipping points and can lead to a change in outlook or even a downgrade of a sovereign credit rating.
Click here to read the full article!