Bad News Flows Down. Job Loss in the U.S. Chokes Remittances for Back Home

Guatelmala (US Department of State)

Bloomberg Businessweek April 27, 2020 pp28-29 “The Pain of U.S. Layoffs Travels South” “Central American nations that rely on remittances are seeing steep drops in inflows”

You probably didn’t realize that “money sent back home” constitutes up 21% of GDP for some countries. 21.4% for Honduras, 20.8% for El Salvador, 13.1% for Nicaragua, 13.0% for Guatemala, 12.5% of Lebanon, 11.8% for Ukraine, 9.8% for Philippines, 8.8% for Egypt, 8.6% for Dominican Republic and 7.9% for Pakistan among others. COVID-19 job loss means less money for the relatives back home. In total “Remittance flows to low- and middle-income countries rose to an all-time high of $529 billion (2018)…[and] were on track last year to become the largest source of external financing for these nations…”. The COVID-19 decline is so far about 10% for Guatemala and El Salvador “surpassing the declines seen during the 2008 financial crisis”. With fewer dollars flowing "home" local currencies may be depreciated.

The International Monetary fund has earmarked $389M for El Salvador and $143M for Honduras to fight the virus and ease the economic pain. The economies of Central America may shrink 3% this year. For many, life in the years to come won’t be the same.