The fate of Latin American economies, deeply reliant on remittances from the United States, hangs in the balance with the upcoming U.S. presidential elections, Fitch Ratings said on Friday.
Why it’s important
The potential disparity in immigration policies between the Republican and Democratic administrations could significantly affect Central American nations, which are heavily dependent on remittances from the U.S.
Key comment
“Central America is highly vulnerable to U.S. immigration policies, as remittances fund a large component of their economic activity,” said Fitch, a U.S.-based credit rating agency.
In countries like El Salvador and Nicaragua, remittances currently account for more than 30% of their gross domestic product, the ratings agency said, adding that Mexico is also one of the largest recipients of remittances globally, where inflows have steadily increased over the past decade to close to 3.5% of GDP, from 2%.
By the numbers
Remittances to Nicaragua have tripled in the past five years, while those to other countries, specifically El Salvador and Jamaica, have considerably slowed.
A study based on data from the U.S. Current Population Survey showed that a 1% increase in the country’s household earnings results in a 0.2% to 0.3% increase in remittances sent abroad.
Context
The U.S. elections could usher in changes in immigration policies, with Donald Trump’s campaign showing a willingness to restrict border crossings and increase deportations, while the potential Kamala Harris administration would aim to pass a bipartisan law to reform the asylum process and limit immigration parole.
Policy changes could significantly affect migrants and the Central American economies that are heavily dependent on the money they send back home from the United States.