Remittances in Central America: Second-best year in a decade

Family remittances in Central America’s Northern Triangle (El Salvador, Guatemala, and Honduras) are on track to close their second-best year in the last ten years, a significant step considering that 2021 broke records.

Family remittances to the three countries totaled US$25.5 billion from January to September, reaching a growth rate of 16.5%, and US$3.6 billion more than the figures as of September last year.

Thus, they advanced at the second-highest rate of the entire decade, only surpassed by the 34.2% increase in the January-September 2021 period, when flows accumulated US$21.9 billion, Bloomberg Línea estimated based on data from central banks and the Executive Secretariat of the Central American Monetary Council (SECMCA).

In September alone, the Northern Triangle received almost US$3 billion in remittances: Guatemala, US$1.6 billion; Honduras, US$737.4 million; and El Salvador, US$623.6 million.

In terms of volume, Guatemala consolidated its position as the largest recipient in the Central American isthmus, with US$13.3 billion in the first nine months of the year, growing at a rate of 21%.

Central American Business Intelligence (CABI) said that flows would rise between 18% and 20% in Guatemala to close at around US$18 billion by December 2022.

For the first time in its history, Honduras is surpassing remittance levels in El Salvador. Hondurans captured US$6.5 billion, compared to US$5.7 billion for Salvadorans, in data through September.

In 2013, El Salvador obtained US$850 million more remittances than Honduras; in 2021, it still managed to outpace it by US$147.1 million.

Since 2018, Honduras and the rest of the Northern Triangle countries have experienced the phenomenon of migrant caravans, i.e., undocumented migrants marching organized in groups to cross the border between Mexico and the United States.

The first ones originated in Honduras in October 2018 and congregated between 4,000 and 3,000 people each, said the International Organization for Migration (IOM). New waves of 150 to 1,700 migrants subsequently departed from the Northern Triangle countries.

However, this year, the exodus of Venezuelan migrants has taken center stage, and Central Americans have declined.

In the fiscal year 2019, 63.8% of encounters at the U.S. Southern Border were with undocumented migrants from the Northern Triangle; in 2022, these accounted for only 22.8%.

IF REMITTANCES WERE A COUNTRY

The Northern Triangle received 90.3% of remittances to Central America in 2021. The region -including Panama- received US$33.4 billion in remittances.

With that multi-million dollar size, if remittances were a country, they would be the fourth largest economy in the region.

They would be behind Guatemala, Costa Rica, and Panama and ahead of El Salvador, Honduras, and Nicaragua.

The nations most dependent on these transfers are El Salvador and Honduras, for whom they meant 26.16% and 25.87% of their Gross Domestic Product in 2021, respectively.

In Guatemala, the relevance is increasing and reached 17.79% of GDP last year; in Nicaragua, it is already 15.32%.

For Panama and Costa Rica, the phenomenon barely represents 0.8% of their economies and has a more tenuous impact since they are also remittance-sending economies.

Despite the size of these resources, a marginal amount is destined for investment.

The Central Reserve Bank of El Salvador estimates that of the flows captured as of September, 99% is spent on consumption (US$5.6 billion) and 1% on investment (US$53 million).

Data from the U.S. Census Bureau from 2019 estimate that more than 3.78 million Central American immigrants live in the United States.

With information from Bloomberg