Sunday, June 16, 2024

New remittances record set in May, but strong peso diluted impact

Remittances to Mexico hit a new monthly record of just under US $5.7 billion in May although the strength of the Mexican peso in recent weeks and months is softening the impact of money sent home by workers living abroad.

Most of the money sent to Mexico in remittances comes from the United States, where millions of Mexicans live and work.

Man inspecting construction
Mexican workers in the United States make up the majority of people sending remittances to Mexico. (Ryan Hagerty/Wikimedia Commons)

The Bank of Mexico (Banxico) reported Monday that $5.69 billion in remittances flowed into the country in May, an increase of 10.7% compared to the same month of 2022.

The dollar amount for May is the highest for any month since remittance records were first kept in 1995. The previous record was $5.36 billion, set in October last year.

The month-over-month increase in remittances was 13.8%, with Mother’s Day on May 10 helping to boost inflows of money from Mexicans working abroad, according to analysts at the Monex financial group and the banks BBVA and Banco Base.

“Mexican migrants … send additional amounts of money this month so that women who are mothers … can buy a present or save the money,” said BBVA México senior analyst Juan José Li Ng.

Open air market in Mexico
A stronger peso means less money for recipients who depend on remittances to contribute to their monthly budget. (Margarito Pérez Retana/Cuartoscuro)

Banxico data shows that the almost $5.7 billion in remittances sent to Mexico in May came via 14.6 million separate transactions, a 7.4% increase compared to the number registered in the same month of 2022. The average amount sent was $391, a 3.1% jump from a year earlier.

The Mexican peso’s strongest position in May was 17.42 to the dollar in the middle of the month. At that exchange rate, the average remittance of $391 was worth 6,811 pesos.

The dollar-peso exchange rate in May 2022 fluctuated from just above to just below 20. At 20 pesos to the greenback, the same $391 remittance is worth a more appealing 7,820 pesos.

With a stronger peso, the recipients of remittances — families primarily, albeit not exclusively — have less money to spend in Mexico, unless remitters increase the amounts they wire to offset the strengthening of the local currency.

Alberto Ramos, head of Latin America economics at Goldman Sachs, acknowledged that “a strong peso hurts remittances,” and said that remittances — once converted to pesos —actually declined 2.2% annually in May.

He also said that the strength of remittances in US dollars is indicative of “a very solid U.S. labor market and visible wage gains in activities and in skill-levels where Mexican citizens are disproportionately represented.”

Agave farmer in Mexico
Analysts at the Monex financial firm recently noted that remittances from abroad between January and May 2022 contributed more to Mexico’s economy than agriculture and oil exports combined. (Agriculture Ministry)

Even as a strengthening peso eats into the total amounts of money that ends up in the pockets of those receiving payments from abroad, the importance of remittances to the Mexican economy remains significant.

Central bank data shows that $24.67 billion was sent to Mexico in the first five months of the year, a 10.3% increase compared to the January-May period of 2022. Analysts at the financial firm Monex noted that the amount is higher than the combined value of Mexican agricultural and oil exports in the same period.

Based on the data for the first five months of the year, Mexico is on track to exceed the calendar year record of $58.51 billion in remittances that was set in 2022. Mexico was the second largest recipient of remittances last year behind India, which had inflows of some $100 billion.

Analysts at Banco Base increased their forecast for remittances to Mexico in 2023 to $63.26 billion from a $62.88 billion prediction in April because many remitters are sending larger amounts to compensate for high, albeit falling, inflation and the current dollar-peso exchange rate. One greenback was worth just above 17 pesos on Tuesday morning.

Banxico reported that remittances in the 12 months to the end of May totaled $60.8 billion, a record high for a period of that length.

President López Obrador frequently describes Mexicans who work abroad and send money home as “heroes.”

Mexico's President Lopez Obrador and Well-Being Minister Rocio Mejia
President López Obrador is so aware of remittances’ importance to Mexico’s economy that in May, he created a way for nationals abroad to send money home to social welfare recipients at a lower cost than through money-transfer services. (Presidencia)

During an address on Saturday to mark the fifth anniversary of his 2018 election victory, he said that 12 million Mexican families were benefiting from remittances, many of whom live in “the country’s poorest and most marginalized communities.”

“I thank our compatriots [abroad] for their help in the most difficult moments of the pandemic,” López Obrador said.

“… A migrant proudly said to me: ‘Mr. President, don’t forget that we left Mexico, but Mexico never left us,” he added.

With reports from El Financiero, Expansión and Reuters 

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