A staff research from the International Monetary Fund (IMF) is forecasting that the growth in remittances to Central America, Panama, the Dominican Republic, and Mexico seen over the last two years will slow as "some of the extraordinary factors" leading to "an unpredicated strong comeback" in remittances in 2020 and 2021 dissipate.
The report entitled 'The Unexpected Rise in Remittances to Central America and Mexico During the Pandemic' did not mention Jamaica, but the circumstances leading to remittance growth in Jamaica during the novel coronavirus pandemic are similar to those which led to an unpredicted strong comeback in remittances sent to countries in Central America.
It, however, pointed out that, even if the conditions leading to remittance growth over the last two years dissipate, "over time remittances are expected to grow as immigration to the US continues to rise and the average amount remitted grows in line with US wages".
Remittances from the US to Central America, Panama, the Dominican Republic, and Mexico reached US$85 billion in 2021, up 26 per cent from 2020. This was the highest growth in remittances registered in the past 20 years. About US$2 of every US$3 sent in remittances to countries in Latin America and the Caribbean goes to countries in the Central American subregion.
"If employment and wages remain strong in the US, we should expect an increase in remittances during times of hardship in Central America and Mexico as immigrants help families back home," the report commented.
Remittances — the money sent from citizens working abroad to families back home — are a crucial source of income in Central America, Panama, and the Dominican Republic as well as Mexico.
Economists predicted that remittances to the region would decline by up to 20 per cent, given the fall in US employment at the onset of the pandemic.
"They based this prediction on the data from traditional macroeconomic models that linked US labour market conditions with immigrants' income. These models accurately predicted the deep but brief collapse in remittances that we observed in April 2020, but they failed to predict the strong comeback that followed," the report pointed out.
In explaining the reasons behind the surge, the report noted that before the pandemic the overall value of remittances sent to a country was determined by the number of times remittances were sent. But this changed in the pandemic, according to the report.
"The jump in remittances observed in the second half of 2020 was a result of an increase in both the number of transactions and the average amount remitted per transaction," it stated. The number of times in which remittances are sent is called the volume effect and the increase in the average amount remitted is called the value effect.
"The rise in the number of transactions — the volume effect — was most likely driven by an increase in the number of people sending remittances rather than new immigrants arriving in the US. As a result of the lockdowns, immigrants also adapted and switched to remitting digitally, rather than in person, increasing the number of transactions. More importantly, most of the increase in remittances was due to the value effect. Rising US wages drove the increase in the average amounts remitted. US Government assistance, through unemployment insurance relief, also supported incomes and compensated for the loss of income, contributing to the increase. The "altruism" motive was very strong as COVID-19 cases were increasing at home, immigrants in the US sent, on average, more money home."
Remittances remained strong in 2021 due to the US labour market recovery and sustained growth in real wages. By the end of 2021 the service sectors where Central American immigrants predominantly work recovered, recording increases in weekly earnings that were above the US average.