XM -Blog

Remittance Impacts In LATAM and Caribbean

January 5th, 2018

Remittances in Latin America & Caribbean

Economic migration is a crucial global phenomenon; a result of people’s yearning to better the lives of their families. As migrants leave their home countries to find higher-paying jobs abroad, there is a global rise in productivity and competitiveness. Likewise, remittances sent home by these overseas workers help improve the standard of living, health, and education of their families back home.

Remittances play a key role in the development of countries in LAC (Latin America and the Caribbean) region, particularly those in Central America and the Caribbean. In these regions, migrants account for about 10 percent of the population, compared to the average two percent in global emerging markets. Remittances from these emigrants account for approximately 8 percent of average GDP of countries in Latin America and Caribbean.

United States is the top destination for migrants from the LATAM and Caribbean region. About two-thirds of all migrants from the region reside in the US and this trend has been stable for over two decades. Almost all Mexican migrants and those belonging to CAPDR (Central America, Panamá, and the Dominican Republic) choose the US as their second home. Expats from Caribbean are also spread in Europe and Canada. South America has a more diversified migration pattern, with intraregional migration as well as migration to European countries like Spain and Portugal.

While migration does lead to a lack of skilled and educated work force within the home countries, migrant remittances have a significant positive social and economic impact for recipient families and countries.

Macroeconomic Stabilizer

Inward remittances have played a key role in bringing macroeconomic stability within in the LAC (Latin America and Caribbean) region, especially in the Caribbean and CAPDR. Remittances help generate fiscal revenue, increase consumption smoothing, and help support financial stability. They also play a key role in lowering poverty and inequality in these societies. Migrant remittances play a crucial role in times of crisis as well. Data indicates that remittances rise when the receiving country faces a natural disaster.

Large, resilient and less volatile

Compared to other sources of external financing, remittance flows are more resilient and less volatile. In CAPDR and Caribbean regions, they are larger than any other external inflow. While private capital inflows are larger than remittances in South America, remittances are a more stable source of external financing.

Financial Inclusion

Perhaps the most significant impact of inward remittances is financial inclusion. In the LATAM region remittances have helped bridge the gap between financial tools and the financially excluded. Remittances have allowed recipients to save in good times and tap into these savings when domestic income reduces. They also facilitate access to credit by strengthening borrowers’ ability to repay.

Economic Stabilization

Apart from promoting private consumption, remittances also help in bringing economic stabilization to the recipient country. Even though remittances are generally untaxed, they can help raise fiscal revenues considering that spends out of remittances become a part of the base for indirect taxation.

Skill Development

While migration may lead to a loss of skilled individuals in the home country, remittances sent by emigrants are mainly used for providing good education to their children. This in turn, increases the educated population of countries in the Latin America and Caribbean region; thus, in some way, helping overcome the gap caused by migration in the first place.

Today, labor is one of the biggest exports of Latin America and the Caribbean and hardworking immigrants remit billions of dollars every year. In 2016, this number surpassed $70 billion; and with global remittances improving in 2017, this number went up to $79 billion. The LATAM and Caribbean story shows us how migration and remittances shape this world’s economic landscape. The region also offers endless possibilities for Money Transfer Operators and other Fintech to offer innovative, secure, and cost-effective remittance solutions for expats.