COVID-19 Cash Transfers: Insights from 20 Billion Transactions

The COVID-19 pandemic has been a huge shock to the global economy. Millions of people have lost their jobs, incomes, and savings. Governments around the world have tried to cushion the blow by providing various forms of financial assistance to their citizens.

But how effective have these measures been?

And how have people used the money they received?

These are important questions that can help us understand the economic and social impacts of the pandemic, as well as the best ways to design and implement future policies.

However, answering these questions is not easy. We need reliable and detailed data on how people actually spend their money, not just what they say they do.

Fortunately, a new study titled "What can 20 billion financial transactions
tell us about the impacts of COVID-19 fiscal transfers?" by researchers from the Bank for International Settlements and the Bank of Thailand have found a way to do just that.

They used a massive dataset of 20 billion financial transactions from five major banks in Thailand to track how households reacted to the fiscal transfers they received from the government during 2020 and 2021.

Their study is one of the first to use such high-frequency and granular data to measure the effects of COVID-19 cash transfers on consumer spending. It also covers a wide range of recipients, including formal and informal workers, the elderly, the disabled, and children.

What did they find? And what can we learn from their analysis?

In this blog post, we will summarize their main findings and explain what they mean for you.

COVID-19 hit Thai households hard

Thailand is one of the countries that has been hit hard by the COVID-19 pandemic. Two of its main sources of income, tourism and exports, have collapsed due to travel restrictions and weak global demand. The country also faced two major waves of infections in 2020 and 2021, which forced it to impose strict lockdowns and curfews in many areas.

These shocks have had severe consequences for Thai households. Many people have lost their jobs or incomes, especially in sectors such as hospitality, entertainment, transportation, and retail. Others have faced increased health risks or expenses due to the virus or lack of access to medical services.

According to official statistics, Thailand’s GDP contracted by 6.1% in 2020, its worst performance since 1998. The poverty rate increased from 9.9% in 2019 to 12.4% in 2020, reversing years of progress in reducing poverty. The inequality index also rose from 0.44 in 2019 to 0.46 in 2020, indicating a widening gap between rich and poor.

As a result, many Thai households have experienced financial hardship and distress during the pandemic. They have had to cut back on their spending, borrow more money, or sell their assets to cope with their situation. Some have even fallen into debt traps or poverty traps, where they cannot escape from their low income and high expenses.

The government’s response was not enough

To mitigate the adverse impacts of the pandemic on households, the Thai government implemented various fiscal, monetary, and financial measures. One of the most widely used fiscal measures was the provision of direct cash transfers to individuals.

The government initiated a program of direct transfers in April 2020, where 3 monthly payments of 5,000 THB (about 150 USD) were dispersed to workers in the informal sector. The program covered about 15 million people, or about 40% of the labor force.

The government also provided recurring payments for the elderly, disabled, and children under various social pension programs. These payments ranged from 600 to 1,000 THB (about 18 to 30 USD) per month, depending on the age and condition of the recipients. The programs covered about 12 million people or about 17% of the population.

In addition, the government expanded its support in 2021 by sending out 5,000 to 15,000 THB (about 150 to 450 USD) in direct transfers to those registered in the social security program who resided in areas affected by lockdowns. The program targeted workers in the formal sector who were either employed by companies, self-employed, or former employees. The program covered about 12 million people, or about 33% of the labor force.

These fiscal transfers were intended to provide some relief and stimulus to households during the pandemic.

However, were they enough? And did they reach the right people?

According to the study by BIS and BOT researchers, the answer is no. They found that the fiscal transfers had only modest and short-lived effects on household spending. They also found that there was a lot of heterogeneity and inequality in how different groups of recipients used the money they received.

The study reveals surprising insights

How did the researchers reach these conclusions?

And what did they discover about the impacts of fiscal transfers on household spending?

The researchers used a novel dataset of transaction-level money transfers from five major banks in Thailand between July 2020 and December 2021. The dataset covered nearly 80% of all money transfers in the Thai banking system. It included transactions made at the branch or through electronic channels: ATM, mobile, and internet banking.

The dataset contained information such as the transaction amount, purpose, date, time, and channel. It also contained information about the sender and receiver of each transaction, such as their bank account number, national ID number, gender, age, income, education, occupation, and location.

The researchers used this dataset to identify and track the recipients of various fiscal transfer programs implemented by the government during 2020 and 2021. They also matched each recipient with a non-recipient who had similar characteristics and spending patterns before the transfer. This allowed them to compare how recipients and non-recipients behaved after the transfer.

The researchers focused on two main research questions:

How much more spending did the recipients make as a proportion of the fiscal stimulus?
Did the stimulus make up for lost spending during lockdown?

They answered these questions using two methods: panel ordinary least squares regression and matched observational study. They also segmented the recipients by income level and analyzed patterns at the monthly and daily levels.

Here are some of their main findings:

Overall, the recipients spent, on average, 40% of the money received over the first six days and 49% accumulatively over the first three months compared to a matched control group with similar characteristics.
There was a large degree of heterogeneity among recipients. The lower income group spent the highest proportion of the money received (55-62%) and the fiscal injection more than covered up for their lost spending during lockdown. The higher income group spent less (27%) or even a negative (-8%) proportion of the money received and did not recover from their lost spending during lockdown.
The recipients spent more on essential goods and services such as food, utilities, health care, education, and transportation. They also spent more on digital platforms such as e-commerce and e-wallets. They did not spend much on discretionary items such as entertainment or travel.
The recipients also used some of the money to pay off their debts or save for future needs. They reduced their borrowing from informal sources such as loan sharks or relatives. They increased their deposits in formal financial institutions such as banks or cooperatives.

These findings reveal some surprising insights about how Thai households spent their COVID-19 cash transfers. They show that fiscal transfers can have positive and significant effects on household spending, especially for lower-income groups who are more vulnerable and liquidity-constrained. They also show that fiscal transfers can have different effects on different groups of recipients depending on their income level, location, occupation, and spending habits.

These findings also have important implications for policymakers and practitioners. They suggest that fiscal transfers can be an effective tool to stimulate household spending and support economic recovery during a crisis. However, they also highlight the need for careful design and targeting of these programs to ensure that they reach the right people and achieve the desired outcomes.

In conclusion, this study provides a valuable contribution to our understanding of how households react to fiscal transfers during a pandemic. It offers new insights and evidence that can help us make better decisions and policies in the future.

Here are the five main points to remember from this blog post:

The COVID-19 pandemic has had severe impacts on Thai households, causing job losses, income reductions, and financial distress.
The Thai government responded by providing various forms of fiscal transfers to its citizens, but these measures had only modest and short-lived effects on household spending.
A new study by BIS and BOT researchers used a novel dataset of financial transactions to measure the impacts of these fiscal transfers. They found that recipients spent, on average, 40% of the money received over the first six days and 49% accumulatively over the first three months.
The study also found a large degree of heterogeneity among recipients. Lower-income groups spent a higher proportion of the money received and recovered more from their lost spending during lockdown than higher-income groups.
These findings suggest that fiscal transfers can be an effective tool to stimulate household spending during a crisis, but they need to be carefully designed and targeted to ensure they reach the right people and achieve the desired outcomes.

P.S. What do you think is the most surprising finding from this study? Share your thoughts in the comments below!

Remember, learning is a lifelong journey. Keep exploring, keep asking questions, and keep growing. You are doing great! 🌟

Read my other posts here: Conventional Finance - FinFormed, Islamic Finance - FinFormed, Takaful - FinFormed, Career - FinFormed and Randow Writings - FinFormed

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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