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Fewer remittances because of Covid-19 will hit hard Central and Latin America

Thursday, May 14th 2020 - 08:50 UTC
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Mexico has been one of the largest recipients of worldwide remittances, behind India and China. Mexico has been one of the largest recipients of worldwide remittances, behind India and China.

Remittances—the money that immigrants working abroad send home to families on a regular basis—have become a major source of funding for developing countries. In 2019, total global remittances exceeded US$550 billion, putting them on a par with levels achieved by foreign direct investment.

The remarkable growth trajectory of remittances was expected to continue into next year, but a global Covid-19-induced recession this year is likely to put a stop to that, causing additional economic distress in recipient countries.

A squeeze on jobs and wages in the US and other developed countries will translate into fewer remittances, affecting less-developed regions such as Central and Latin America.

Mexico has been one of the largest recipients of worldwide remittances, behind India and China. In 2019, Mexico received US$ 36 billion from expats repatriating money back home from the US. Smaller countries in Central America have a lower absolute value of inflows, but remittances make up a larger percentage of their small economies. For example, in Honduras, remittances made up 21.4% of GDP last year, and in El Salvador they were 20.8%.

“Remittances will face downward pressure as social-distancing measures affect the US service sector,” said ratings agency Fitch in a recent report on Latin America and the Caribbean. The median Fitch-rated country in the region receives the equivalent of 10% of GDP from remittances. In 2009, the last recent year with a comparably large output contraction in developed markets, remittances to Latin America and the Caribbean fell 15%, Fitch said.

The International Monetary Fund’s April update concluded that Latin America and the Caribbean could see GDP contract by 5.2% in 2020, with Mexico’s GDP shrinking by 6.6% under the impact of a contracting oil industry. That compares with zero growth in 2019 and an expected global worldwide contraction of 3% this year.

Categories: Economy, Politics, Latin America.

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