Tuesday, July 23, 2024

Surge in growth of remittances from abroad projected to continue

Remittances sent to Mexico by family and friends abroad will total US $58.5 billion by the end of this year, an increase of 13.4% over 2021, according to a report from the financial institution BBVA México.

And in 2023, the figure will only go higher: an expected $62.6 billion being sent home by Mexicans living abroad, says the report, titled “Yearbook of Migration and Remittances 2022.”

The BBVA report says this surge of remittances indicates that currently there is a greater dependence on this money from abroad than there was before the COVID-19 pandemic — both in Mexico and other Latin American countries.

In fact, in some states in Mexico, the total of remittances received by families is larger than that state’s spending on items for the public such as education, health, payroll for public officials, infrastructure, social programs and social assistance.

For example, data from BBVA and the federal Bank of México (Banxico) shows that state government spending in Michoacán in 2020 was US $3.85 billion, while incoming remittances there amounted to US $4.56 billion.

Similar dynamics exist in Guanajuato, Zacatecas, Jalisco and five other states, and the figures are expected to be lopsided again for 2022. What this shows, in these states in particular, is that money flowing in from remittances is of huge importance for the state’s economy, the newspaper Reforma concluded.

“In those states, households and the local economy depend a lot on remittances,” said Jesús Cervantes, director of economic statistics and coordinator of the Forum on Latin American and Caribbean Remittances, a program of the Center for Latin American Monetary Studies (CEMLA). “In households that do receive them, the weight that remittances have on household income is gigantic.”

“The local economy of those states also depends a lot on remittances because that household income is going to be spent in stores [and] different establishments,” he added. “And some [government] income depends on that household spending. Local and even federal public revenues benefit, for example, if [the person spending money from abroad] buys a product that pays VAT (value-added tax).”

Clients wait in line at Western Union, a popular money transfer service.
Clients wait in line at Western Union, a popular money transfer service.

According to CEMLA, it is estimated that in Mexico there are 4.9 million households and 11.1 million adults who receive remittances from relatives abroad. The incoming money benefits women the most, according to data from the BBVA report.

Remittances increase the income of Mexican households that receive them by at least 30%, Cervantes noted.

In the first half of 2022, remittances across Mexico totaled US $27.6 billion, an increase of 16.6% compared to the first half of 2021, a year when Mexico was the second largest recipient of remittances in the world (behind only India, and ahead of No. 3 China).

The above is a six-month figure from the BBVA study. According to the federal entity Banxico, the influx of remittances in the first seven months of 2022 totaled US $32.8 billion, with most of the money coming from friends and family living in the United States. This figure is a 16.4% increase over the US $28.2 billion received during the same period in 2021.

Looking just at July of this year, the amount of remittances sent to Mexico was US $5.7 billion, according to Banxico, which was the highest amount in a month since 1995, the year statistics started being kept. The July 2022 figure was 4.4% higher than June 2022, and 16.5% higher than July 2021.

Moreover, July marked the third consecutive month that more than US $5 billion per month had been sent to families in Mexico.

A big part of the story in all of this is that sending money from abroad to Mexico is cheaper than sending it to any other country in Latin America and the Caribbean, except for El Salvador, according to the BBVA report.

For example, at this time last year, the average cost to wire US $200 to Mexico was 4.4% of that figure, or US $8.80. El Salvador was the cheapest at 3.9% of the amount sent, with Honduras, Ecuador and Paraguay all at 4.5%, according to BBVA. The average global cost last year, the report added, was 6.3%.

In addition, the average remittance sent to Mexico has increased from $295 in 2016 to $370 this year, according to one report, and $389 according to another.

With reports from Infobae and Reforma

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