Latin America Advisor

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Why Do Remittances to Mexico Continue Breaking Records?

Mexico’s level of remittances grew in May to $5.17 billion, a new monthly record. // File Photo: Mexican Government. // File Photo: Mexican Government.

Remittances to Mexico hit a record level of $5.17 billion in May, a 14 percent increase as compared to the same month last year, the country’s central bank announced July 1. The total for May brought the amount of remittances Mexico has received for the first five months of this year to more than $22 billion. What are the main factors driving the flow of remittances to Mexico, and will new records be reached in the coming months? How are economic conditions such as inflation affecting the flow of remittances? How important are remittances for Mexico’s economic stability and growth?

Manuel Orozco, member of the Financial Services Advisor board and director of the Migration, Remittances and Development Program at the Inter-American Dialogue: “Remittances to Mexico will increase 18 percent in 2022, almost as much as the region’s 14 percent projected growth. The case of Mexico is one about a continued migration uptrend that has shown signs of increase since 2018. By 2022, the U.S. Department of Homeland Security is expected to reach nearly 900,000 apprehensions of Mexicans, with the first six months of this year showing a 30 percent increase from 2021. Overall new migration, additional to legal authorized entries through H2 visas and family unification, will add 350,000 Mexicans, 70 percent of whom will send money, in 2022. In addition, the average amount sent among all Mexican migrants is at least 3 percent more than the year before. Together with new migrants, they are contributing more than $60 billion annually, or 4.75 percent of Mexico’s national income, in remittances. Finally, many Mexicans who would have returned to Mexico are staying longer in the United States and continue to send money. Altogether, these three factors explain the increased inflow of remittances. The logic behind these numbers stride from internal dynamics in Mexico due to slow modernization and growth, continued polarization and family unification. Other intervening factors include the increased cost of living. Mexico, like other countries in Latin America, is experiencing continued remittance growth, partly as migration is resulting as a factor of family economic necessity in light of poorly performing economies and governments in these countries. Countries such as Nicaragua, Guatemala and Honduras are also leading with two-digit growth in remittances, which dovetails with deteriorating conditions in those places.”

Julia Yansura, program director for Latin America & the Caribbean at Global Financial Integrity: “Remittance growth is being driven by economic need and inflation in Mexico, coupled with a relatively strong dollar and more frequent sending patterns among migrants in the United States. May is typically one of the biggest months of the year for remittances to Mexico due to Mother’s Day, but this year has broken all previous records. To understand what is going on, it helps to analyze factors such as migration flows, economic conditions in home and host countries, as well as the sending method, frequency and principal (the average amount per transaction). In this case, data from Mexico’s central bank indicates that from May 2021 to May 2022, the principal grew by 4 percent and the number of transactions by 10 percent. In a context of low migration, this suggests that Mexican migrants are sending nearly the same amount per transaction, but much more frequently. This corresponds with an increased use of online and mobile remittance platforms, which make sending more convenient. Meanwhile, Mexico’s annual inflation rate is nearly 8 percent while salaries have struggled to keep up, meaning that the increase in remittances will help recipient families meet basic living expenses. At the same time, the dollar was quite strong against the peso for much of May, allowing recipients to receive slightly more pesos for every dollar sent. All of this has contributed to the historic high of $5.17 billion.”

Nicolás Mariscal, member of the Advisor board and chairman of Grupo Marhnos in Mexico City: “There are three possible reasons remittances to Mexico have soared: more Mexicans are sending remittances, the same number of Mexicans are sending more remittances or a combination of both. Around half of those trying to cross illegally into the United States are Mexicans, and the economic situation in Mexico is likely incentivizing Mexicans in the United States to send more money to their families back home. Therefore, in the coming months, remittances will continue to increase, as poor economic conditions will push more Mexicans to reach the ‘American dream,’ and rising inflation will cause an increase in money sent to the country. Let’s not forget that over the last 12 months, consumer prices increased by 7.99 percent, according to INEGI, and that the Bank of Mexico in June increased its key interest rate by 75 basis points to 7.75 percent. Inflation is here to stay for the foreseeable future. Remittances are crucial for the country, as they represent 4 percent of GDP, the second-largest source of foreign exchange after the automotive industry. Millions of Mexican families depend on them.” 

Tara Hariharan, managing director of global macro research at NWI Management LP: “Mexico is the world’s second-largest recipient of remittances. Roughly 95 percent of remittances to Mexico originate from the United States, a fact that supported remittances through 2020 and 2021 as the U.S. economy quickly rebounded from the pandemic and Mexican immigrants were often essential workers who stayed employed throughout it. But this reliance on the United States may now temper future remittances to Mexico as U.S. recession risks loom, doubly prompted by aggressive Federal Reserve rate hikes to quell inflation and the end of pandemic-era consumer stimulus. Economic malaise also regrettably tends to spur U.S. xenophobia. Still, remittances should remain fairly robust as the U.S. labor market is still tight and Mexican immigrants often work in the services sector, which is still benefiting from pent-up consumer demand. Additionally, ascending U.S. interest rates have strengthened the dollar; remittances to Mexico increase when the dollar can buy more pesos. Furthermore, digital remittances are helping make transfers more convenient. Strong family ties should continue to bolster Mexican remittances; inflows seasonally surge every May for Mother’s Day and typically rise to support Mexican households whenever Mexican growth declines. Remittances help alleviate poverty in Mexico by smoothing basic consumer expenses such as food, clothing and health care. However, these flows cannot compensate for limited Mexican fiscal support for households or for declining domestic investment. In the long run, Mexico can reduce its reliance on remittances through structural reforms to support its growth, productivity and competitiveness. Crucially, Mexico must ease the cost of doing business, improve governance and promote education.”

Hugo Cuevas-Mohr, director of Mohr World Consulting and IMTC Conferences: “The increase in remittances to Mexico, as well as to Guatemala and Honduras, is at the top of every industry participant’s agenda. Inflation in Mexico weighs heavily on this volume increase. Factoring in inflation, the increase drops almost 50 percent to slightly below 10 percent. Jesús Cervantes of CEMLA points out that the economic downturn of the Mexican economy also plays a role, as the need for financial support from families in Mexico is greater. Alberto Guerra, the CEO of Uniteller, points out that the increase in U.S. employment, both in the number of jobs and salary amounts, is also a contributing factor in the increase. World Bank data shows that Mexico has become the number two remittance-receiving country, bypassing China for the first time, while India remains in the top spot. The importance of remittances to Mexico has never been greater.”

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