Remittances to Mexico are poised for a record in 2022

The flow of remittances to Mexico is shaping up to break a record in 2022, in accordance with the trend shown from January to September.

Already in the first nine months of this year, remittances totaled US$42.978 billion, the highest level for a similar period.

Previously, Mexico obtained its highest historical amount from January to September 2021, when the indicator reached 37.35 billion dollars.

Remittances represent income from foreign economies generated mainly by the temporary or permanent migration of people to those economies.

However, formal definitions are slightly broader than the above because they start from balance of payments definitions that are not based on the concepts of migration, employment or family relationships.

Remittances include funds flowing through formal channels, such as an electronic money order, or informal channels, such as cash carried across the border in pockets.

They may consist almost entirely of funds sent by immigrants in a new economy who become residents of that economy, and the net remuneration of border, seasonal, or other short-term workers employed in an economy in which they are not residents.

Remittances to Mexico

Family remittances continued to be an important source of consumption financing: in 2021 they totaled $51.586 billion or 4% of Mexican GDP.

Previously, remittances were $33.677 billion in 2018, $36.439 billion in 2019 and $40.605 billion in 2020.

Mexico does not apply foreign exchange restrictions or restrictions to repatriate what is invested or pay profits, dividends, interest and royalties abroad. However, remittances, including the payment of dividends and profits and any type of earnings, are subject to a tax.

As negotiated in the Investment Promotion and Protection Agreements (APPRI) and trade agreements, Mexico may temporarily limit transfers abroad to maintain balance of payments equilibrium.

Overview

Mexico’s balance of payments current account deficit exceeded US$20 billion each year of the 2016-2018 period, representing between 1.7% and 2.2% of GDP).

The behavior of the oil balance, the services balance and the primary income balance fundamentally explain these deficits.

On the other hand, the surplus in the secondary income account, particularly from remittances, continued to increase.

The Covid-19 pandemic caused a sharp contraction in exports and imports of goods and services in 2020.

But the drop in imports was larger, resulting in a balance of payments current account surplus of US$26.21 billion, or 2.4% of GDP.