Analysis: Remittances Show Promise in the Face of the Ongoing Global COVID-19 Pandemic
The COVID-19 pandemic has imposed catastrophic consequences across the world, with a disproportionate effect on Latin America and the Caribbean. With a projected 9 percent contraction in regional gross domestic product (GDP) for this year, experts fear that the heightened economic uncertainty and lower foreign demand brought on by the health crisis might signify yet another lost decade for Latin America. There is one factor, however, that paints a particularly promising picture for the outlook of the region: remittances.
Immigrants have long used remittances to support their families back home. Two-thirds of all migrants from Latin America and the Caribbean reside in the United States, making the country the largest— and given its robust economy and currency, the most reliable—source of remittances for the region. Remittances account for 20 percent of El Salvador and Honduras’s GDP in 2019 and 14 percent in Guatemala. Remittances are a crucial source of investment and external financing for the region, helping to reduce poverty and inequality.
As economies hastily shut down across the globe in early 2020, the World Bank projected a 20 percent drop in remittances to Latin America and the Caribbean this year. As predicted, remittances did take a plunge—initially. El Salvador and Colombia, for example, witnessed a remittances crash of 40 percent and 38.5 percent, respectively, in April 2020 in comparison to April 2019.
Photo courtesy of Monito.