The effect of the economic situation in receiving countries on remittance flows

Value of remittances received

The resources that migrants periodically send home are mainly used to cover their families' basic expenses. Therefore, it is important for them to at least conserve the value of the remittance to sustain their purchasing power. Factors which can affect the value of remittances received include the exchange rate (between the currency in the sending country and the local currency) and changes in the costs of products and services which the remittance-receiving family needs to acquire with these resources; that is, the level of inflation.

During 2013, local currencies in LAC countries generally lost value against the dollar, for a regional average of approximately -2%,a smaller loss than that observed the previous year. Disaggregating the region into blocks, it can be seen that not only countries in Central America, but also in the Caribbean and South America suffered currency depreciation. Mexico's peso, on the contrary, appreciated by 2.9%.

Table 14. Effect of exchange rates and inflation on remittances, 2012-2013 

IN 2013
ANNUAL GROWTH RATE: 2012-2013 (1)
SOUTH AMERICA   16278.3 -1.5% 5.1% 3.0%
  ARGENTINA 1078 8.8% 31.2% 18.2%
  BOLIVIA 1182 8.0% 7.6% 1.7%
  BRAZIL 1623 -18.4% -5.8% 15.4%
  CHILE 923 2.3% 5.0% 3.2%
  COLOMBIA 4071 -0.0% 4.4% 2.3%
  ECUADOR 2449.5 -0.1% -0.1% -2.7%
  GUYANA 415 2.5% 3.7% 1.9%
  PARAGUAY 743 -7.6% -10.2% -12.5%
  PERU 2707 -2.6% 0.5% -2.2%
  SURINAM 118 4.4% 4.4% 4.4%
  URUGUAY 133 8.1% 9.3% 0.6%
  VENEZUELA 835.8 4.1% 46.8% 10.4%
CENTRAL AMERICA (2)   14870.7 5.4% 7.1% 3.3%
  BELIZE 120 7.1% 11.5% 11.2%
  COSTA RICA 560.7 6.5% 6.0% 0.7%
  EL SALVADOR 3969 1.5% 1.5% 0.7%
  GUATEMALA 5104 6.7% 7.7% 3.2%
  HONDURAS 3121 7.8% 12.4% 6.9%
  NICARAGUA 1202 4.3% 9.2% 2.0%
  PANAMA 794 9.2% 9.2% 5.1%
CARIBBEAN (3)   8519 3.0% 8.9% 3.3%
  REP. DOMINICANA 3333 5.5% 12.3% 7.2%
  HAITÍ 2017 1.5% 1.5% -4.0%
  JAMAICA 2065 1.3% 14.7% 5.3%
  TRINIDAD Y TOBAGO 131 1.6% 1.7% 1.7%
MEXICO   21583 -3.8% -6.7% -10.1%
  MEXICO 21583 -3.8% -6.7% -10.1%
Total   61251 0.0% 1.9% -1.5%


Source: MIF-IDB

The general depreciation observed in the region enabled remittance receivers in the majority of LAC countries to exchange the remittances received for a larger amount of local currency than usual, which improved their purchasing power and was reflected in an increase of 2.1% in total remittance flows to LAC in terms of local currency. However, countries such as Mexico, Costa Rica and Bolivia, where the local currency appreciated, showed losses in the value of the resources received. The gains in the value of remittances in local currencies, resulting from the depreciation experienced by a majority of LAC countries, were partially offset by the losses in value due to inflation. Even so, in real terms, remittance beneficiaries' purchasing power was strengthened in almost all countries. South America gained 3.0% in purchasing power in the remittance flows received; the Andean region: 0.8%; Central America: 3.3%; and the Caribbean: 3.3%. Only in the case of Mexico did appreciation of the peso, coupled with inflation, worsen the effect of a decrease in remittance flows, yielding a loss in remittances' purchasing power in local currency in 2013 of -10.1%. Given the importance of remittances received by Mexico in the total flows sent to the region, the overall results for the region for 2013 saw a loss of value of -1.5%.

Importance of remittances on GDP of receiving countries

As seen in Table 3, remittance flows have been gaining relevance with respect to the GDP of several countries of Latin America and the Caribbean. Although remittance flows at the regional level have not yet recovered their pre-crisis levels, in countries such as Haiti, Guyana, Honduras, El Salvador, Nicaragua, Jamaica and Guatemala, these flows still account for more than 10% of GDP, and more than 5% in half of the LAC countries, which demonstrates their economic importance in the region.

Figure 11. Remittances to Latin America and the Caribbean as a percentage of GDP, 2007-2013

Source: MIF-IDB

At the microeconomic level, these flows represent an important source of income for millions of receiving families, including those in economies with higher GDPs. Remittance income has enabled many families to attain a higher standard of living, through financing the costs of consumer goods, education, health, housing, and, in some cases, investment in small family businesses. Such progress can be seen in the study conducted in the Nicaragua-Costa Rica border area; without this regular flow of resources, many receiving families would fall below the poverty line.[1]

[1] Monge-gonzález, R.; Céspedes-Torres, O.; and Vargas-Aguilar, J. “South-South Remittances: the Costa Rica-Nicaragua Corridor.” 2009.