These Central American countries receive more than 20% of their GDP from remittances

SAN SALVADOR – Four Latin American countries obtained more than 20% of their GDP from remittances in 2022: Honduras, El Salvador, Nicaragua and Guatemala. Remittances in Honduras represented 28.8% of GDP, while in El Salvador they represented 26.7%, which makes them the countries in the region with the highest percentage of remittances compared to Gross Domestic Product (GDP), according to a report of Inter-American Dialogue.

Manuel Orozco, director of the Migration Program of the Inter-American Dialogue and author of the study, explained if in a country the economic activity of a particular item —remittances, for example— represents more than 5% of its national income, it creates a relationship of dependency .

A change “may affect how the locale works.”

A variation in remittance income, as occurred in the year of the pandemic, “could put the economies of those nations in a vulnerable condition,” added Orozco.

The number of households in the region that have at least one relative abroad amounts to more than 30%, added Orozco, and those who are left are people “with less competitive labor capacity in foreign markets.”

“This implies that in the long term, the rate of remittances may slow down, and in the absence of strategies to leverage the savings generated by remittances, the economy will grow less and may eventually stagnate. This situation is not going to happen in 2023, but it may turn out like this in five years or more, ”he concluded.

It is not a problem if most of the Central American countries are dependent on remittances or not, but the problem lies in the “economic model” of these nations that “do not seek diversification,” he explained. The private sector and the state in these countries are not generating leverage strategies and policies —mechanisms for foreign savings, she added.

“The low economic diversity of a country is inversely related to social progress. In the case of remittances, they generate a solution in the absence of more viable economic life options,” he added.

Remittances increase disposable income and saving capacity. “That increase in income increases consumption demand as well as investment demand,” he said.

In El Salvador, remittances are not reflected in GDP as part of a specific account, he explained to the voice of america the economist Rafael Lemus.

“The national accounting of GDP is estimated by three methods: income, demand and supply. If one looks at the spending side, what private individuals consume thanks to remittances, that is reflected in GDP. On the income side, the same, households report more income that allows consumption, ”he pointed out.

In principle, he added, it is good that countries have more income from remittances. The problem, he added, is that a price is paid, and that price is emigration.

“Everything that is experienced in terms of risks in transiting to a certain country illegally is a problem. The other is what is left: a disintegrated family, children in the care of grandparents, uncles, etc., and then come social problems such as low education, family integration problems derived from migration, ”he said.

The Nicaraguan case

Migration from Nicaragua has increased in recent years, with greater emphasis in 2021 and 2022. Thousands of Nicaraguans left their country after the sociopolitical crisis that began in 2018. Experts estimate that half a million have emigrated from the nation, which has an estimated population of 6.8 million inhabitants.

But what is striking is the high growth in remittances that it has had since then. According to figures for 2022, Nicaragua received 3,224.9 million dollars in remittances last year, twice as much as in 2021, and which represents more than 21% of its GDP.

“10% of Nicaraguans have fled in a period of four years. The intention to migrate in these countries is driven by fear, repression, imprisonment and economic exclusion. These countries have seen fit to expel people as a way to reduce societal pressures and receive remittances instead: the Nicaraguan labor force has not increased since 2017, while remittances increased from 12% to 21% of national income, and 14% of tax revenue,” concluded the Inter-American Dialogue in a report.

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