Remittances to Mexico will fall this year and next; volume of remittances has stagnated: BBVA
The flow of remittances to Mexico will be negative this year and next because the volume of remittances has stagnated, said BBVA senior economist Juan José Li.
If the dollar strengthens again, it will drive an increase in the amount of money spent in Mexican pesos, which is how most people spend in the country, but it will not increase the amount spent in dollars, he stressed.
Participating in the CEMPE quarterly meeting, entitled "Trumpenomics, Remittances at Risk, Migration, and Trade Under Pressure," he observed that the number of Mexican remittances is no longer growing, meaning the remittance base peaked in 2023 and 2024.
He noted that, in contrast, migration from the Caribbean, South America, and Central America to the United States continues to increase.
Mexican migrants' commitment to sending remittances is stronger upon arrival in the United States, but over time, their connection to their country of origin weakens, he explained. This happens because they have moved their relatives away, or their parents have died in Mexico, or they have separated from their spouse in their country of origin. As time goes by, Mexican migrants are less inclined to send remittances.
In the United States, there are 12 million second-generation immigrants and another 12 million third-generation immigrants.
He added that there has been a year and a half of volatility in remittance shipments to Mexico , where there have been positive monthly inflows but the pace of inflows has slowed compared to previous months and has sometimes been negative.
He estimated that the impact of the 5% tax on remittances, currently under discussion in the U.S. Congress, will be about $1.5 billion less than the $62.5 billion that arrived last year.
As stated in the initiative, it was clear that the tax will only apply to undocumented issuers, which in the case of the Mexican population in that country is proportional to 35.8% of the total.
He mentioned, for example, that of the $65 billion received by households receiving remittances in Mexico last year, some $30 billion were sent by undocumented workers in the United States.
"What we believe will happen is that most senders will find alternative delivery channels."
He emphasized that 97% of remittances registered in Mexico come from the United States, and there are 4 million Mexican citizens, 3 million with green cards (work permits), and second- and third-generation Mexicans.
This means that undocumented workers, who would be taxed on remittances, "have many family members and friends who can help them send the money in their own name (without paying the tax)."
He estimated that initially, migrant workers from that country could transfer their savings to their homes to anticipate the tax. But this will not be sustainable over time.
The BBVA expert on migration and remittances considered that there is "a good and real opportunity" for immigrant families in Mexico to access banking services, thanks to this tax.
The tax will increase the cost of sending remittances. Each $400 transfer currently costs $6. Applying the tax would increase this cost by $24. And an interbank transfer costs $25 to $40. Therefore, four $400 transfers, which are about $1,600, would cost $100 to send.
So we think that many sending families could become banked, as could many receiving families.
But the risk is that other issuers will seek informal remittance channels, and there may be legal channels such as the purchase of gift cards; the purchase of products from abroad, or through an individual traveling to the country.
But the use of informal channels linked to organized crime can also be encouraged, he lamented.
BBVA's senior economist pointed out that this legislation being discussed in the United States could destroy a highly competitive and regulated market, where everyone knows who sends and receives remittances. And, consequently, could lead to the growth of a significant informal market.
He added that remittance recipients are not the poorest households in the country. He argued that 60% of remittance-receiving households are in the lowest five deciles of the population. But "remittance recipients are distributed across basically all deciles of the population."
In the same presentation, CEMPE Coordinator Eduardo Loria explained that remittances are not only received by the poor, but by everyone across the social spectrum. However, 55% of remittance recipients are the ones who most regret the income because they currently have to pay for healthcare, primarily at pharmacies.
Eleconomista
