Remittances Remain Vital Source of Revenue for Latin America’s Economies

The amount of money wired home to relatives in countries in the region continues to grow, with Colombia receiving the largest amount among the nations analyzed

The US is the principal source of remittances to Latin America.
October 27, 2022 | 05:52 PM

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Bloomberg Línea — Migration by South Americans in search of opportunities in countries with stronger economies has increased during the onslaught of the Covid-19 pandemic, and by the end of 2020 there were approximately 281 million international migrants in the world, or 3.6% of the world’s population, according to the United Nations World Migration Report 2022.

The report indicates that by 2020 a little more than 30 million Latinos were residing outside their region, with the United States being the main country of residence, where there are 25 million people in migrant status.

In general terms, and outside the migratory phenomenon, the US Census indicates that there are 62 million Latinos living in that country.

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These figures support the estimates that remittances to the countries of Latin America will continue to grow year after year, and especially this year due to the strength of the dollar, which has seen Latin America’s currencies depreciate in value in comparison.

Bloomberg Línea has reviewed international remittance indicators in Colombia, Ecuador and Peru, finding that their economies have already seen an injection of $10.22 billion in foreign currency via wire transfers. Venezuela also appears in the picture, although its figures vary according to the report.

Colombia in the lead

Colombia received a total of $6.12 billion in remittances to August 2022, according to reports published by Banco de la República, making it the South American country with the highest income from this revenue source, according to Bloomberg Línea’s analysis.

By 2021, for example, remittances contributed 2.7% of Colombia’s GDP, while in 2014 the figure was 1.1%, according to the bank, which highlighted that the increase in remittances the previous year “was associated with the aid offered to households during the pandemic in the countries where emigrants reside (...) while the accelerated depreciation of the peso exchange rate against the dollar and the euro were another stimulus for the increased sending of remittances to the country”.

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Ecuador sustains its levels

Meanwhile, reports from the Central Bank of Ecuador (BCE) state that remittances to the country totaled $2.26 billion between January and June of this year, with the amount increasing in the second quarter of 2022.

Between April and June the flow of remittances that entered the country amounted to $1.16 billion, an increase of 5.15% compared to the value observed in the first quarter of 2022 ($1.10 billion), and a 6.67% increase compared to the second quarter of 2021, when $1.08 billion in remittances came into the country.

For the ECB, this increase in the flow of remittances is mainly explained by the increase in employment in the United States and Europe, as well as “by a greater flow to these latitudes that would be explained by the lack of employment and job opportunities during the Covid-19 pandemic, which would have forced many Ecuadorians to migrate to other destinations”.

In addition, the central bank highlighted in its report that official sources in those countries indicated that remittance flows “come mostly from informal activities”.

Peru maintains incoming flow, with little growth in remittances

The latest report of the Central Reserve Bank of Peru (BCR) detailed that in the first semester of the year the country received $1.83 billion in remittances, also defined as deriving from family income.

The country received $906 million in the first quarter and $929 million in the second quarter, showing growth compared to the same periods of the previous year ($852 million and $919 million, respectively).

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However, growth rates are low. For example, for the second quarter the figure was 1.1% higher than in the same period of 2021, and 2.5% higher than in the first quarter of the year.

To end-June 2022, the region had received 37% of the total estimated for the year by the World Bank. dfd

Remittances to Peru also come mainly from the United States, followed by Spain and Argentina. From the US alone, $432 million entered the South American nation between April and June.

The slowdown in remittances, not only in Peru but in Latin America in general, is due to the economic slowdown, which will also affect exports and tourism, according to a recent publication by the International Monetary Fund (IMF).

The case of Venezuela

Venezuela’s figures are monitored by private companies, international organizations and study and research centers in the country, rather than by the government itself.

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It is for this reason that by 202,1 migrant remittances were estimated at $3.5 billion, equivalent to approximately 5% of Venezuela’s GDP, according to a macroeconomic report presented by the Economic Commission for Latin America and the Caribbean (ECLAC).

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However, by 2022 it is not possible to have a cumulative tracking figure that reflects the level of remittances that have entered the country, although different private analyses estimate that these would have grown by more than 45% this year, exceeding $4.7 billion.

But formal and recognized remittances totaled $12 million to June and are expected to total $22 million by the end of the year, according to Zoom, specifying that for this type of currency transfers to be recognized as remittances, they must be registered in the balance of payments of the Central Bank of the country. However, most transactions arrive through private companies that then facilitate their payment.

A study by the Center for Latin American Monetary Studies (Cemla), state that 85% of Venezuelan migrants send monthly remittances to their families, with remittances mainly from the United States averaging $212 per month.

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The outlook in Latin America

In 2021, the region received $131 billion in remittances, one of the highest levels of growth in the last 20 years.

By mid-2022, the World Bank indicated that the flow of remittances to low- and middle-income countries would increase by 4.2% this year, reaching $630 billion globally. For the region, growth would be 9.1%, with almost $143 billion received across the region’s countries.

By the first half of 2022, according to Bloomberg Línea calculations, Latin America had already received $53.4 billion, according to the official reports of each country in the first half of the year, which is 37% of the World Bank’s projection.