GEISHA KOWLESSAR-ALONZO
The IDB has just published Technical Note IDB-TN-2845 which reports on the continuing recovery of remittances to long-term trends in 2022 and 2023 in Latin America and the Caribbean (LAC) after inflows stalled during the COVID-19 years of 2020 and 2021.
The report, which was prepared by the bank’s migration unit, noted that T&T is projected to receive US$329 million in 2023.
A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
According to the report, during 2022 and 2023, “flows of remittances received by LAC countries continued to grow at rates of 10.7 per cent and 9.5 per cent respectively, similar to the rates that had been observed before the pandemic, thus consolidating the trend observed up to 2018 and 2019.”
The main drivers of the regional trends were in Central America, especially Nicaragua, where remittances grew at (13.2 per cent).
Growth was strong in Mexico at 9.8 per cent and in South America at 7.9 per cent, especially to Argentina and Paraguay.
In Caribbean countries, growth was substantially more modest rate at 2.6 per cent, with remittances to T&T growing the fastest in this subregion.
The IDB expects these growth rates to persist throughout all of 2023 and beyond, and indicates that if that projections hold, gross remittances to the entire region will amount to about US$156 billion dollars in 2023.
In the case of the Caribbean, the projections are that the 2.6 per cent growth rate will yield a gross inflow of US$18.2 billion during the year.
Of this, T&T is projected to receive US$329 million, just about 1.2 per cent of the T&T’s projected GDP for the year of US$27.42 billion.
Most of the remittances into the Caribbean come from the USA, with Canada a distant second.
In the case of T&T, 57.7 per cent come from the USA and 21.2 per cent come from Canada.
The IDB explained the volume of remittances received during the year by an increase in the income of migrants, who had higher employment rates, as well as by increasing migration in the pre-pandemic years.
That would have allowed migrants to settle in and find jobs that could generate that scale of capital inflows to the countries of origin.
Since 2008, weekly incomes of LAC migrants in the USA have been rising steadily, reaching US$860 in the first quarter of 2023.
The IDB provided data showing that for the entire Caribbean region, the growth rate of remittances received is expected to be 45.3 per cent lower than the estimated growth rate of GDP per capita of these countries for 2023.
The data suggested that the incomes of families relying on remittances would deteriorate relative to the income of families that do not receive them.
Economist Dr Vaalmikki Arjoon noted that while remittances received in T&T are far lower than other countries in the region such as Haiti and Jamaica, they do play an important role for the families receiving them.
“It is indeed a way to supplement their income, cover their daily expenses and unexpected medical emergencies and other economic hardships. Overall, it helps to lift several households out of poverty by increasing their purchasing power, which by extension helps to contribute to increased sales revenues for the private sector locally. Some families also use remittances to invest in their own small business. It also is another small source of forex earnings for the economy,” Arjoon explained.
However, he said there are some drawbacks for those with a high dependency on remittances, as it could potentially discourage some from looking for productive jobs, or engaging in some entrepreneurial activity or even agriculture, given that they have a steady source of funds via the remittance sent by relatives. It also makes the receiving families vulnerable to external shocks or downturns in the economic circumstances of the sending countries.
“If the income from remittances decreases due to factors such as changes in immigration policies, economic crises in the sending countries, or job losses among migrant workers, the recipients in T&T may suffer disproportionately. This underscores the need for the state to promote initiatives that encourage productive investment of remittance funds and foster financial literacy and entrepreneurship among recipients,” Arjoon noted.
In its report the IDB also echoed that remittances are vital support for many families in the region, and the monitoring and analysis of these flows is important to understand
their dynamics and influence on the living standards of the citizens of the countries of the region.
Economist Dr Vanus James who also spoke on the report, said it is interesting that the IDB provided no details on the volume and education of migrants from a small economy like T&T, that allowed it to dominate the observed trends in the growth rate of remittances.
“It is also interesting that the Migration Unit did not find it interesting to juxtapose the growth of educated migrants and remittances against the evidence of a falling trend in GDP per capita in Trinidad and Tobago in the pre-pandemic years. That would have provided a sense of the real net benefit of the migration,” James added.
However, he said there are some things already known.
From the evidence published by the CSO, it can be estimated that the GDP per capita of T&T tended to increase between 2012 and 2014 and then declined steadily from 2015 through to 2021 before staging a recovery in 2022.
“We also know that productivity, as measured by output per worker exhibited a broadly similar pattern. Further, the algebra of GDP per capita growth makes it clear that, in addition to the effects of the productivity slowdown, some of the stagnation in GDP per capita is likely the result of loss of tertiary-educated workers with diplomas, certificates and degrees. This would suggest that the small volume and modest growth of remittances should be cold comfort to the nation,” James said.
Clearly, he added, the development cost of giving up this country’s skilled workers to the US and Canada is very high and it takes much more than remittances to cover that cost.
Instead, for recompense, James advised that the country must attract enough American and Canadian entrepreneurs, their workers, and their direct investments into sectors other than energy.
Going forward
According to Arjoon, the cost of remitting monies to the region, especially T&T, is still high, especially premiums paid to banks when sending bank transfers or remitting via Western Union.
Therefore, he advised that wider adoption of fintech can lower these costs, but the region is still lagging.
Applying innovative financial technologies, can significantly reduce banking costs so that more money ends up in the pockets of the recipients instead of being spent on fees.
Arjoon added that there are also many who do not have access to traditional banking services.
“Fintech companies can bypass this by providing services that do not require a bank account, such as mobile money, which can increase the number of people who can receive remittances. Money sent via mobile wallets can be transferred almost instantly, and they often have lower transaction costs, meaning more money ends up in the hands of the recipient,” he explained.
Further, Arjoon said they can also be used by anyone with a smartphone, making them accessible to a large number of people, fostering greater financial inclusion. This is particularly important in the Caribbean, where banking penetration can be low but mobile phone usage is high.
