Remittances are cash transfers sent by migrants, usually to family members in their country of origin. International remittances can also make up part of the regular income of some people, for example, those who perform cross-border work, such as seasonal workers who tend crops in neighbouring countries. According to UNDESA, migrants send an average of 15% of their earnings back home. Remittances often represent up to 60% of family income.
In 2019, remittances worldwide accounted for a flow of $706 billion, most of it ($554 billion) to low- and middle-income countries, setting a new record, the World Bank said. However, they also project that the flow of remittances in 2020 will be affected by the economic impact of the pandemic, falling 19.7% globally, and 19.3% for Latin America and the Caribbean. The IOM estimates those most affected will be those working in the catering, construction, manufacturing and hospitality industries, which are traditionally performed by migrants in North America and Europe.
Despite these projections, some countries continued to see a rise in remittances, at least during the first two months of the year. As time passes, a decline in remittances is being observed.
Guatemala, for example, reported an increase in remittances during the months of January and February, compared to the previous year. While a drop was noted in March, April and May 2020 compared to 2019, more remittances were reported in May 2020 than in May 2018. Moreover, the balance up to May 2020 shows a decline of 3% compared to the previous year.
In Mexico remittances practically doubled during March 2020, the month in which the pandemic was declared, in comparison with the previous month. This represented the greatest monthly increase in remittances since 1995, as well as the highest ever income received by recipient families from remittances, with $378 USD. Some economists attribute this increase to a fear held by migrants that their incomes would be reduced in destination countries, causing them to send savings to their families.
In other countries, however, the predictions have come true and a decrease in the receipt of remittances has occurred. Such is the case of Honduras, which between January and March decreased by 1.1% from the previous year, apparently as a result of a loss of income in the destination countries due to the outbreak of COVID-19, especially the United States. This decrease in remittances intensifies as the months pass: between March and April 2020, the country reported 43% less reserves compared to 2019.
A similar case is found in El Salvador, where a 9.8% drop in remittance between January and April 2020 was reported, compared to the previous year. The vast majority of remittances in this country (95.4%) come from the United States, one of the places hardest hit by the pandemic. It is expected that with the gradual opening of states, remittances will be strengthened.
Reducing the cost of sending remittances is necessary to help alleviate this situation, in line with the Sustainable Development Goals, specifically Goal 10 target 10.c, which aims to reduce the transaction costs of migrant remittances to less than 3%. One factor that can offset remittance fees (which on average, entail a sending fee of 6.79%, which is well above the 3% fee suggested in the SDGs) is a decrease in the value of the currencies of recipient countries, which increases the value of what migrants send home.
As mentioned above, the main factor in the reduction of remittances to Central America is probably due to the reduction in income from migrants in the United States due to COVID-19. However, there are other factors associated with the pandemic that must also be taken into account, such as:
- Vulnerability in health: migrants are required to be in good health to be able to keep working. However, 20% of regular migrants in the US do not have health insurance. The figure increases if they are irregular migrants, and that’s just one example.
- Economic recession: employment and remittances will be hit hard, as the effects of the pandemic-induced recession are felt. An estimated 595,000 migrant workers could be affected. According to ILO, the pandemic will restrict the ability of migrants to travel to work in their host countries and reduce their income, as well as their capacity to return to their families.
- Exclusion of people from crisis response systems, leaves them more vulnerable to global crises.