Remittance flows to Latin America and the Caribbean are expected to increase by 5.0 per cent to US$64 billion in 2014 and by 4.3 per cent to US$67 billion in 2015, the World Bank Group said in a recent publication.
According to the Bank, economic growth in the United States is having a positive impact on the outlook for remittance flows to Mexico and Central America. The high unemployment rate in Spain will continue to dampen remittances to Bolivia, Colombia, Paraguay, and Peru. Data for Mexico, El Salvador, and Guatemala – which together account for more than half of remittances to the Region – show that remittance inflows grew by more than six per cent in the first eight months of 2014 compared with the same period the previous year.
Remittances to Nicaragua rose by four per cent over the same period. Despite the increase in the number of deportations from the US back to Mexico, El Salvador, Honduras, and Guatemala, remittances received by these countries continue to rise. The pace of growth in the rest of Latin American has been slow and uneven, especially for Argentina.
Remittances from Chile are continuing on an upward trend. Remittances from Chile to Colombia grew by more than 20 per cent during the first half of 2014 compared with the same period the previous year. New housing construction in the US, traditionally a large employer of migrants, appears to be recovering.
The number of housing starts for new privately-owned homes grew by eight per cent in August 2014 from a year earlier, and the US construction sector has added about 19,000 jobs per month over the past year. Reflecting this increase, remittances to Mexico have had 12 consecutive months of growth.
In the US, the unemployment rate of Hispanics declined from 10.1 per cent in August 2012 to 7.5 per cent in August 2014. Employment of foreign-born workers overall remains more responsive than native-born workers. Employment rates for both groups fell during the crisis in 2009, but since early 2011, employment of migrants has recovered faster than the employment of native workers. In contrast, slow growth and high unemployment in Spain, which hosts about one-tenth of all migrants from Latin America, has been reflected in the negative or flat growth in outward remittances. Many migrants are returning to their countries of origin.
These restrictions are pushing remittance flows towards informal channels. At the same time, foreign exchange controls in Argentina and Venezuela are also impacting remittances to Bolivia, Colombia, Paraguay, and Peru. Venezuela banned outward remittances starting in February 2014, and flows to Colombia, for example, fell steeply from US$44.6 million in the first trimester (which already was half of the amount received in the same period in 2013), to only US$0.5 million in the second trimester. Remittances sent to Venezuela through formal channels have also become prohibitively expensive – sending US$200 through formal channels yields the recipient less than US$30 worth of bolivars through the official exchange rate.
Officially recorded remittance flows to developing countries are projected to reach US$435 billion in 2014, 5.0 per cent higher than last year. The growth in remittances is expected to moderate to 4.4 per cent in 2015, raising flows to US$454 billion. This outlook is based largely on lower projected Gross Domestic Products (GDP) growth rates in key remittance-sending countries.
Global remittance flows, including flows to higher-income countries, are expected to follow a similar pattern, rising from US$582 billion in 2014 to US$608 billion in 2015. Remittances are an essential source of external funds for developing countries.
These flows were three times larger than official development assistance in 2013, and are steadier than both private debt and portfolio equity flows. Remittance flows are significantly larger than total Foreign Direct Investment (FDI) to developing countries, excluding China.
They are also a more stable component of receipts in the current account, reliably bringing in foreign currency that helps sustain the balance of payments and dampen gyrations.
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