Helping home

Is Mexico becoming too dependent on remittances?

Latin America is one of the world’s top destinations for remittance flows, many families are dependent on the transfers from more prosperous parts of the world to make ends meet. Last year, remittances to Mexico grew 27.1% from USD 40.6 billion in 2020 to USD 51.6 billion in 2021, a record high, only in China and India were such flows higher. In economic terms, the effects can be both positive and negative. 

A senior official in the Mexican senate and specialist in migration explained, “Remittances are a mirage. If one looks at the population of India, which is more than 1.3 billion people, Mexico with a tenth of that population is the second recipient country of remittances. What would Mexico be without those remittances? There would be more social chaos and inequality than already exists.”

“What would Mexico be without those remittances? There would be more social chaos and inequality than already exists.”

A senior official in the Mexican senate

No doubt, remittances are a survival palliative for millions of Mexicans which go directly to medicines, food and education where state support is insufficient. Indeed, on one hand, the growth of remittances bought about an expansion in domestic economic growth. Doing so turned remittances into an important source of financial resource, even comparable to foreign direct investment according to pundits. 

Have remittances been useful as a tool for reducing poverty? A former senior official with the Organisation for Migration explained, “Remittances have done little to reduce poverty,  they are not an instrument to clear up social inequality. Remittances are helpful for families, but they cannot be interpreted as a poverty-reducing achievement for the Mexican government. On the contrary, it is the vivid expression of defeat for not knowing how to conceive a climate for greater investments and opportunities.” 

“Remittances have done little to reduce poverty,  they are not an instrument to clear up social inequality.”

A former senior official with the Organisation for Migration, Mexico 

The pandemic increased the reliance on remittance flows, which did increase, yet poverty levels remain stagnant. There are other worries too, money laundering concerns also persist – drug trafficking cartels have become adept at rewiring transfers from North America and from undocumented individuals too afraid to go to the authorities for help.  

“The example of this trend of criminality is clear and is best represented by the state of Guerrero, the poorest state in Mexico, which increased its levels of receiving remittances alongside a large migratory exodus of workers. What does Guerrero have? The largest poppy crops close to consumers in the North American market and now with the ban of the Taliban in Afghanistan on poppy production, a new paradise,” explains the senate official.  

Exchange rates could also be another cause for concern. It would be necessary to take into consideration not only the exchange rate but also the high commissions for sending money. That said, the appreciation of the dollar as a strong currency is linked to other circumstances, but not to remittances. The flows will continue, but surely there are better ways to engender long-term economic growth? 

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