Latin America and the Caribbean was the only region to see positive growth in remittances in 2020 despite initial projections that economic fallout from the pandemic would cause the number of people sending money internationally to friends and family to plummet.
According to data from Creative Associates International, Latin America had a 1% increase in remittances in 2020, while the amount sent to Africa and Asia dropped by 9% and 8% respectively. Initial projections from the World Bank predicted a nearly 20% fall in Latin America at the start of the pandemic.
Manuel Orozco, director of the Center for Migration and Economic Stabilization at Creative and who researches remittances, said there are multiple reasons why migrants from Latin America and the Caribbean — who mostly reside in the U.S. — were able to continue sending funds. Lessons learned from the financial crisis in 2009 as well as the increased availability of mobile money apps and services left them better positioned to continue their giving, even amid job losses and economic contraction, he said.
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“Risk mitigating measures through stock of savings; unemployment that eventually turned out to be lower in the first year than it was in 2009; and, three, the remitting behavior through online payments seems to motivate you to send just a little bit more. The combined effect of that is increases [in remittances],” Orozco said.
Compared to the 2009 financial crisis, migrants had saved more money for an emergency — an average of $6,000, a 30% increase from a decade ago — and were able to continue remitting even if their own financial situation was adversely impacted by pandemic business closures, travel restrictions, and lockdown orders. While U.S. unemployment was initially predicted to reach around 20%, meanwhile, it came in under 10%.
Orozco said he expects those who adopted mobile apps and services as a way to remit from home without having to go into a business during the pandemic are likely to continue using them.
“People really dug into their savings and into their earrings to make sure that relatives who were in distress had funds.”— Andrew Selee, president, Migration Policy Institute
“The percent of remittance recipients receiving their transfers into their bank account increased significantly,” Orozco said. “Some Central American countries increased to 30 percent. Once you receive the transaction into an account then you have different payment vehicles to utilize the money.”
Latin American migrants in the U.S. are also likely to be employed in essential jobs so were able to continue working throughout the pandemic. Andrew Selee, president of the Migration Policy Institute, said migrants are also more likely to be “flexible” in the job market — accepting a new job even for less pay if it means being able to work.
“Central Americans and Mexicans who primarily send remittances from the United States, people have weathered the storm. And not only that, they have become more generous than in the past with their relatives back home. People really dug into their savings and into their earrings to make sure that relatives who were in distress had funds,” Selee said. “There was both an increase in the number of people remitting and in the average amount.”
Cecilia Vera, an economist at the Economic Development Division of the U.N. Economic Commission for Latin America and the Caribbean, said it’s important to note the wide variation in how reliant regional economies are on remittances, and where the people who typically send money to each country live.
Central America and Mexico typically receive remittances from the U.S. In South America, however, recipients are more likely to receive money from elsewhere in South America, or Spain. And some countries are much more reliant than others, she said: More than 30% of Haiti’s GDP comes from remittances, and over 20% of the GDPs of El Salvador and Honduras do.
“Remittances as a whole are a very, very important part of financing in Latin America,” Vera said, representing $97 billion in 2019. In comparison, net direct investment totaled $118.9 billion last year, according to ECLAC data, she said.
ECLAC follows remittance data for 12 countries, and its overall average shows an increase in remittances in Latin America. But Vera notes that every country in the region did not see an increase: Countries like Mexico had large increases in remittance flow at 11%, but Bolivia and Peru both saw them fall by 22%.
“The average is hiding different realities among different countries,” Vera said. “For some they are falling, for some they are growing, but on average one can say that the forecast done at the beginning of the year was obviously exaggerated and that remittances showed rather much more resilience.”
Some countries took steps to mitigate lost incomes by sending citizens direct payments, Vera said, but she wasn’t aware of any country in the region taking action specifically to mitigate a loss in remittances.
Latin America and the Caribbean has been among the hardest-hit regions in the world by COVID-19, with lockdowns and travel restrictions severely impacting economic activity, much of which is informal. Growth in the region was already slow, and the economy contracted an additional 6.9% last year, according to the World Bank. Vera said this is likely to mean remittances could be all the more important if domestic economics continue to struggle.
“Almost all remittances are covering basic needs: food, health, housing,” Vera said. “This slowing of remittances, of course it will have a significant impact in countries where they are falling. Of course this will aggravate the situation derived from lower levels of income and higher unemployment and higher poverty.”
Additional remittances will still be needed to help guard against pandemic fallout, Selee said. It remains to be seen if people will be able to recover sufficiently in their home country, or if the pandemic causes them to migrate themselves, he said.
“For people who are primarily economic migrants, a lot of the question is not just earning more money abroad, but it’s about socializing risk. People send someone to the U.S. because that’s an insurance plan against a major illness, against people being laid [off] of work, a bad harvest,” Selee said.
“There’s an element to which people move to another country because it is where they can earn more because they’re trying to reduce the risk that their family is exposed to in an unpredictable world. This is your textbook example of where it pays off.”