This blog refers to Manuel Orozco’s notes prepared for discussion at the IMTC, Nov. 17, 2021.
A substantive Increase in 2021
Despite a severe continued deterioration of health conditions among Latin American and Caribbean countries, and a slower than expected economic recovery in 2021, migrant remittance transfers will grow 25% relative to 2020, which had already increased 9%. Some countries demonstrated a substantive increase, of up to 30%. Most of that change is associated to trends in the US economy.
This upward move comes at a time when Latin American and Caribbean countries are still struggling to recover. In turn, these family remittances are responding positively to macroeconomic growth and having an impact in their contribution to national income. Remittances in 2021 will be more than 5% of the entire region’s GDP, and over 20% for many of the smaller countries already affected by the pandemic and recovery.
Some Determinants of Growth
Following patterns in remittance growth points to several important indicators that show that growth is not driven by one specific indicator but by a mix of factors, including sending from the United States, remittance behavior within the marketplace. Specifically,
- Pool of senders has increased: the percent of migrants in the US [who are 50% of all migrants but who transfer 75% of all flows] staying has increased to 20 years, and in turn the percent of senders increased from 80% to up to 85% or more.
- New migration patterns: new migratory waves since 2012 have expanded the size of migration, in 2021 alone, more than 1.5 million migrants have attempted to enter the United States, more than 40% has made it through and nearly half started to send money on the same year. Moreover, intra-regionally, migration has continued to countries like Chile, Colombia, Costa Rica, Panama and the Dominican Republic, and even Mexico. In turn, in 2021 the intra-regional market marketplace has increased significantly, with more transfers as well as more money sent. Haitians sending money to Haiti from Chile is one significant example of over 50% growth.
- Remittance behavior shifts in sending methods in the marketplace:
- The percent of people sending C2C has dropped from 83% in 2016 to 63% in 2021.
- Increase in originated digital money transfers is over 10 million transactions a month, and transactions deposited in accounts also increases to near 20% for the main receiving corridors.
- The principal amount remitted has increased at least by 7%. An illustrative case is that of Central American remitters. Their economic condition improved during this term, and so were able to remit more.
Source: A commitment to Family: Remittances and Covid-19, 2021.
- Cross-border bill payment has achieved a minimum set of traction among migrants, with more than 25% performing some regular activity.
Combined, the increase in the number of senders at least by 7%, plus the increase in the principal sent by another 7%, plus the increase in intraregional flows explain a significant 20% growth.
Remittances will likely exhibit continued but modest growth relative to 2021 because some factors explaining the increase are associated to one-time developments (sustained savings, people staying longer but nearly exhausting the pool of all migrant adults). Looking at Central American remitters, more migrants will send money (of those already in the United States), but the share of remittance senders will not increase quite substantially because it is reaching 90%, yielding 300,000 more transactions.
New migrants entering the country will contribute to the increase, as they will equal 2% of all migrants, amounting to 100,000, at least half of them who send money. However, the principal amount increased may remain low because they will send as per home country needs.
Source: Money transfer companies, and survey data.
Although US demand for labor will remain stable, and unemployment will drop to 4% (among migrants will drop to 5% from 6% in 2021), it is important to consider certain potential risks, specifically:
- The share of senders may return to previous years, to 80% – 85%.
- New migrants may struggle to find jobs.
- Net migration will decrease due to:
- migration restrictions,
- increased demand of skilled labor and,
- deportations above new migrant entry.