How can remittances help or hurt economies in Latin America?

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Remittance flows to Latin America and the Caribbean increased in 2022. Mexico is the second largest recipient of remittances globally and while this is good news for many families receiving additional income, it can be a double-edged sword for economies due to its external dependence and the flight of qualified labor.

The money that Mexican emigrants send to their relatives grew by 13.4% in 2022, totaling some 58.5 billion dollars for the year as a whole, the Central Bank of Mexico reported on Wednesday.

Although this is a record amount for migrant remittances to Mexico, it represents a slowdown in growth. In 2021, remittances grew a staggering 27.1%, totaling some $51.6 billion for the year.

Several analysts point out that the lower rate of increase may be due to slower economic growth in the United States, where most Mexican migrants work, and to higher inflation and a stronger Mexican peso.

Remittances exceed almost all other sources of foreign income for the country, including tourism, oil exports, and most manufacturing exports.

Mexico is the second largest recipient of remittances in the world, the first being India. Indian migrants send home about $100 billion a year. China’s remittance share was affected by the coronavirus pandemic.

Main recipients of remittances globally.
Main recipients of remittances globally. © France 24

Remittances as a percentage of Mexico’s GDP have almost doubled in the last decade, going from 2% of GDP in 2010 to 3.8% in 2020, according to the government. Between 2010 and 2020, the percentage of households in Mexico that receive remittances increased from 3.6% to 5.1%.

“Remittances are an essential source of income for households in low- and middle-income countries. They alleviate poverty, improve nutritional outcomes and are associated with higher birth weights and higher school enrollment rates among children from disadvantaged households,” says the World Bank.

According to the lender, “remittances to low- and middle-income countries faced headwinds globally in 2022, but grew by about 5% to reach $626 billion.”

“Migrants helped ease the rigidity of labor markets in host countries while helping their families by sending remittances. Inclusive social protection policies have helped workers weather the income and employment uncertainties created by the Covid-19 pandemic. These policies generate global impacts through remittances and must continue to be applied,” said Michal Rutkowski, global director of the World Bank’s Social Protection and Labor Global Practice.

Mexican President Andrés Manuel López Obrador has thanked the 38 million Mexicans in the United States on several occasions, whom he describes as “heroes”, estimating that their remittances benefit nearly 10 million poor families.

A World Bank comparison shows how remittances far exceed foreign direct investment and official aid in Latin America and the Caribbean.
A World Bank comparison shows how remittances far exceed foreign direct investment and official aid in Latin America and the Caribbean. © France 24

But Marco Aurelio Peña, an economist and specialist in economic development, points out that remittances are affecting the labor market in Latin America because they leave many economies without qualified labor for internal productivity.

“It is incredible how governments celebrate these growing flows of remittances as if it were some achievement of the countries and it is not, in any way. This is becoming convenient and strategic for incompetent governments that present this as if it were an achievement of their management,” concluded Peña.

The trend of sending remittances will continue in 2023, although at a slower pace, according to specialists, mainly due to the economic slowdown in the United States, which affects regions of constant migration such as Central America and the Caribbean.

with PA

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Written by Editor TLN

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