By Nelson Renteria, Drazen Jorgic and Sofia Menchu
(Reuters) – Carlos Sosa, a Salvadoran waiter in New York, used to send up to $500 a month back home to his mother to help pay for her medical bills and food. But now, after the coronavirus hit and he lost his job in early March, Sosa has burnt through his savings and the wire transfers have stopped.
The 42-year old says he is struggling to pay for even his own rent and is concerned for his mother. “It’s been a very tough situation,” said Sosa, who is in the middle of processing his U.S. residency papers. “The economic part is the most traumatic of all this.”
Lockdowns imposed by wealthy nations to slow the spread of the novel coronavirus, and the jolt those restrictions have delivered to their economies, are severing a vital lifeline for many often vulnerable people around the world: the billions of dollars in remittances sent home by relatives working abroad.
Roughly one in nine of the global population receives remittances, or about 800 million people, according to the United Nations. Early data show severe drops have already taken place. El Salvador saw remittances collapse 40% in April from a year earlier, to $287.3 million, according to the country’s central bank.
Sosa says he looking for a new job but the ones available feel risky, involving cleaning places like trains or hospitals. He has warned his mother that there would be no more wire transfers for some time. As he told her: “We will have to see how we survive this because things here are difficult.”
The World Bank has said it expects global remittances to low- and middle-income nations to fall by $109 billion, or almost a fifth, in 2020 to $445 billion. The bank projects the pandemic will cut into the wages and employment of migrant workers, who tend to be the most vulnerable when there is an economic downturn in host countries.
The steep drop in remittances carries dire consequences for the many countries around the world that are heavily dependent on such payments and whose economies are already reeling from a slump in demand triggered by the coronavirus crisis. The risks range from rising poverty and hunger to balance-of-payments emergencies for developing economies reliant on the cash.
The vulnerable spots include India, China and Mexico, the top recipients of remittances by value, according to the World Bank. The Philippines, the fourth-biggest recipient of remittances, has nearly one in 20 of its adult population working abroad.
Mimi Ysulat used to send home up to HK$2000 a month, or about $260, to her husband and children in Antique province in the Philippines. But the Hong Kong couple whose children she had looked after for nine years have told her to stop working as of late April. Now, the 49-year-old can think of only one way to get money for her family to survive: “Borrow from my sister, borrow from my friend. Just borrow, borrow, borrow.”
The impact could be felt more acutely in emerging and frontier market economies even more dependent on transfers. El Salvador and neighbouring Honduras are particularly vulnerable. Both received remittances that amounted to about a fifth of their gross domestic product in 2018, according to World Bank data. Analysts say that cash bolstered the countries’ construction sectors, stimulated consumption and helped many out of poverty.
The world’s two largest sources of remittance payments have been severely disrupted. The United States, which tops the World Bank’s list, accounting for some $68.50 billion of payments globally in 2018, has seen unemployment skyrocket, with more than 40 million jobs lost since March. The Gulf economies, the world’s No. 2 source, have been hammered by lower oil prices.
LATIN REMITTANCES: BOOM TO BUST
The tightening of the U.S. remittance spigot is expected to reverse a multi-year boom in payments to families in Latin America. Until early this year, Latin American migrants were funnelling record-high sums from the United States, according to central bank data and U.S.-based think tank Inter-American Dialogue. The strong U.S. economy had been the main driver of flows. Remittance specialists also say President Donald Trump’s campaign to halt immigration had helped boost the money flow as migrants saved more in case of deportations.
Remittances to Mexico, Guatemala, Honduras and El Salvador hit a combined record of $57.7 billion last year, central bank data show. Those four countries accounted for about 64% of the 10.5 million undocumented immigrants living in the United States in 2017, according to the most recent estimates from the Pew Research Center.
Early data suggests a collapse in remittances as the coronavirus, and the COVID-19 disease it causes, spread across the United States. Sectors such as food service and hospitality that employ large numbers of immigrants saw jobs vanish almost overnight.
In April, remittances to Guatemala had already fallen by 20% from a year earlier, to $690.7 million. It was a major about-turn for a country that as recently as February was showing remittance growth of 17% from the prior year, according to the country’s central bank. Guatemala received $10.5 billion of remittances last year, the equivalent of almost 14% of the nation’s economy.
Elizabeth, who lives near Guatemala’s capital city, used to receive about $1,200 a month from her daughter’s fiancé, who worked as a cook in the United States. But the payments stopped after coronavirus shuttered the two diners he worked at and dried up his other side jobs.
The money had helped pay for Elizabeth’s treatment for stomach cancer at a semi-private hospital and regular visits from a nurse, as well as food and other basics. The future looks bleak, said 69-year old Elizabeth, appearing frail as she stood in the doorway of her home near Guatemala City in early May.
“Now I only ask God to help us, and to help all those people who lost their jobs in the United States and here,” she said.
Guatemala’s central bank president, Sergio Recinos, said declines in remittances generally have a significant impact on his country’s economy. About half of remittances go towards consumer spending, he noted, and about 30% are spent on construction. He said a negative impact is already being felt in the construction sector.
Nicaragua-based AirPak, a remittance heavyweight operating Western Union Co. franchises in many Central American countries, said that by the end of April, year-on-year flows were down by about 20% across its network, which operates with 26 brands, including MoneyGram. The median value of each transaction declined by about a fifth as well.
“It’s brutal”, said Piero Coen, chief executive of AirPak, which says it handles about a fifth of all remittances flowing to the region.
Western Union’s chief financial officer, Raj Agrawal, told Reuters that the second quarter may be the low point for the world’s largest money transfer firm. He expects the business to improve in coming months amid economic stimulus packages.
Still, the loss of income is expected to shake Latin American economies, especially Central American states, where past periods of economic hardship fuelled gang violence and waves of immigration to the United States.
In Mexico, most remittances come from the United States. Mexico saw a surge in transfers in March – which some analysts attributed to fears of deterioration of employment prospects in the United States and favourable exchange rates. But some analysts estimate remittances could shrink more than 21% between 2020 and 2021.
The slowing flow is felt in the small town of San Bartolomé Quialana in Mexico’s southern Oaxaca state, population 2,500. The money sent back to the town over the years has helped reduce poverty across generations and fuel a multi-year construction boom, according to the town’s mayor, Victoriano Gomez Martinez.
But several empty building sites point to the pause in flow of cash from the United States. On a plot of land Francisco Mesinas was developing with cash from his three children in Los Angeles, metal rods stick out of the foundations of the construction site, while stacked concrete slabs and piles of shingle lay untouched with no workers in sight.
The 30,000 Mexican pesos ($1,364.26) to 60,000 Mexican pesos($2,728.51) Mesinas’ two sons and daughter had been sending each month for the project has dried up completely, after all three children lost their restaurant jobs in Los Angeles.
Standing on red dirt on a site where three houses are to be erected, along with a space for a café and a small business, Mesinas said: “The work has stopped. They couldn’t send money for this.”
($1 = 21.9900 Mexican pesos)
(Reporting by Nelson Renteria in San Salvador, Drazen Jogic in Mexico City and Sofia Menchu in Villa Nueva, Guatemala; Additional reporting by Tom Arnold in London, Jose Cortes in San Bartolomé Quialana, Mexico, Sarah Wu in Hong Kong and Jerome Morales in Manilla, Philippines.; Editing by John Chalmers and Cassell Bryan-Low)