COVID-19: Remittances to CentAm, Caribbean show strong resilience

Remittance flows to the Caribbean and Central America have bounced back from the worst of the coronavirus-related lockdowns with money transfers to several countries looking to surpass 2019 levels this year.

Remittances to the Dominican Republic in September, for example, marked an 37.1% increase over the same month of 2019, coming in at US$777mn – the fifth consecutive month to show double-digit year-on-year improvement, according to data from the country’s central bank. 

The strong rebound in transfers to the Dominican Republic and other nations that are largely dependent on US outflows has confounded the World Bank’s April prediction that global remittances would decline by about 28% this year.

One factor behind the surprising growth may be the pandemic-related acceleration in the adoption of digital platforms and innovative technologies, as suggested by rating agency Moody’s in a recent sector comment.

“Distributed ledger technology (DLT), such as blockchain, are making cross-border payments, remittances and trade finance less costly and more efficient,” said the agency.

The sharp weakening this year of Latin American currencies compared to the US dollar has been another supporting factor, but central banks across the region have acknowledged the US labor market as the main driver.

The Dominican Republic's central bank credited the employment situation in the US as the principal cause of the strong remittance growth, with the US being the source of 84.7% of inflows during the last six months.

In a statement, the bank cited US labor statistics for September, showing 661,000 jobs were created overall with unemployment among Hispanics dropping to 10.3% last month from 10.5% in August.

Post-rebound cool down

After rebounding sharply from the April lockdowns during May-July, remittances to the Dominican Republic have shown signs of deceleration, which might suggest they are settling into a “new normal” with September remittances just under 1% over the August inflows.

El Salvador may also see this year’s remittances surpass its 2019 total, though the Central American nation has seen month-on-month growth cool after the initial post-lockdown rebound. 

El Salvador’s central bank said remittances in September were US$553mn, 20.5% higher compared to the same month in 2019, representing a slowdown from US559mn in August. 

The central bank reported that January-September remittances reached US$4.19bn, or 0.8% more than in the same period last year.

The bank also credited the US labor market for the growth, adding that it is the source of 96.3% of remittances to El Salvador. 

Honduras, Jamaica

Honduras began the pandemic crisis with projections of an annual remittances contraction of between 10% and 15%.

The country’s central bank, however, reported that cumulative inflows through September 24 were only 0.8% lower than in the same period of 2019, coming in at US$3.94bn.

The recovery in remittances to Honduras has been less even, however, with a sharp decline seen in the last week of June, for example.

The latest available data from Jamaica’s central bank shows January-July inflows being US$1.56bn, a 13.3% year-on-year increase. 

Remittances in July alone hit US$275mn, up 43.8% year-on-year, which was partly due to the fact that there was a double-digit drop in July last year.