Monday, February 15, 2021

Dominican Central Bank Reports Double-Digit Percentage Increase in Remittances - guest column

     The following article was written by Gerelyn Terzo, who is a writer for Sharemoney. She is a Wall Street veteran turned financial journalist, having written for InvestorPlace, Motley Fool, and GlobalAg Investing. She also previously served as Sr. Editorial Researcher at MandateWire, MoneyMedia and Financial Times.
     Central Bank News occasionally publishes articles by guest contributors if they are of interest to our readers.

By: Gerelyn Terzo for Sharemoney
The Dominican Republic’s economy has been taken on a roller coaster ride since the onset of the COVID-19 pandemic. For more than two decades, the country’s economy has been on the tear, with an annual GDP growth rate of 6.1% between 2015 and 2019. Much of that momentum has been fueled by remittances, with the percentage of economic expansion driven by personal remittances hovering at 8.3% as of 2019, which is similar to the dynamic in Pakistan, Zimbabwe and Sri Lanka, for example. 
Nonetheless, the country could not escape the wrath of the slowdown caused by coronavirus. For 2020, the Dominican is bracing for an economic contraction of 4.3%, with the fallout continuing to reverberate throughout the country for the next two years,according to the World Bank. As of mid-December 2020, the Dominican Republic experienced approximately 2,400 deaths from COVID-19. 
If a turnaround in the pace of remittances in the second half of 2020 is any indication, however, the Dominican Republic’s economy could be well on its way to recovery. The funds received from family members abroad are depended upon for consumption, savings and investing, all of which helps to fuel the economic recovery. After a tough first half of the year, remittances have been looking up since July, when the amount of money transfers surpassed USD 827 million, up 29.3% vs. July 2019

Remittance Flows 
While the amount of remittances sent to the Dominican plummeted by more than 20% in March 2020, when the shock of the pandemic was first felt, it didn’t take long for the trend to reverse itself. By May, money transfers into the country from the United States were up nearly 18%, thanks to a Dominican diaspora who sent approximately USD 638.7 million back home to their families. That was close to double the amount sent in the previous month and was expected to help get the economy back on the growth trajectory it was experiencing before the pandemic. 
The Dominican migrant community has not disappointed. According to the Central Bank of the Dominican Republic, “the flow of foreign currency continues to improve.” They point to a 27% increase in remittances into the country in November 2020 vs. year-ago levels to USD 707.5 million, representing the seventh-straight month of a double-digit increase in money transfers year-over-year. For the January-November 2020 period, remittances climbed to nearly USD 7.4 billion compared to roughly USD 7.1 billion for all of 2019.
Source: Central Bank of the Dominican Republic 
Nearly 85% of the remittance flows over the past eight months originated from the Dominican Republic diaspora in the United States amid an economic recovery that is underway in the country. In the U.S., unemployment among Hispanics is on the decline, having fallen from 8.8% in October 2020 to 8.4% in November. 
Dominican Diaspora 
As of mid-2019, there are 1,174,000 Dominican Republic migrants living in the United States. And while most Dominican migrants headed abroad flock to the United States, other hotspots include Spain and Italy, where the migrant population from the Caribbean nation stands at 158,000 and 43,000, respectively, as of mid-2017.  
The reasons why remittances have rebounded so quickly in the Dominican Republic are two-pronged. First, considering that many of the migrants are living in the United States, it is likely that they are working jobs that are considered essential throughout COVID-19 in sectors of the economy such as agriculture and healthcare, for example. 
It is also worth noting the high unemployment rate in the Latin American and Caribbean region, as more than 3 million businesses are expected to be shuttered in 2020 while unemployment soars and poverty revisits 2005 lows. 
The second rung to the diaspora ladder is that remittances are embedded in the culture in Latin American and Caribbean nations. Regardless of how tough times get abroad, migrants from these countries know that conditions are likely more difficult back home. As a result, they are more prone to sacrificing meals for themselves in order to ensure that their families back home have some income to ensure their survival. On social media, a Santo Domingo local suggested constructing a statue to honor the Dominican diaspora, who “against all odds” got the money through. 
Another trait of this migrant community is that they keenly observe the exchange rates. So in the event that their local currencies weaken — as has been the case for the Dominican peso during the pandemic — they are likely to capitalize on the exchange rate by sending greater amounts of money back home.  
Dominican Economy 
The Dominican is also considered a “microcosm” of the Latin American region as the eighth largest economy in the region. The country is extremely dependent on the tourism industry, which contributes 7-8% to GDP, and the lockdowns and travel bans have wreaked havoc on the economy in 2020. 
According to the Central Bank of the Dominican Republic, just under 102,000 tourists visitedthe country in November 2020 vs. nearly 475,000 in the same month a year ago. Nonetheless, tourism in the Dominican is looking up, as the borders and airports are open once again and November’s tourism results show an improvement vs. the summer months. The central bank is anticipating “a gradual trend towards recovery in passengers’ arrival.”Given the renewed lockdowns in Europe, the Dominican is increasingly looking to the United States for its tourist flow. 
Broadly speaking, the Latin American and Caribbean region is expected to suffer an economic contraction of -7.7% in 2020, which is the most severe in more than a century, according to the Economic Commission for Latin America and the Caribbean
Economic conditions should improve in 2021 when an expansion of 3.7% is expected. But the regional economy likely won’t return to pre-pandemic levels until 2024 as a result of structural problems that were present prior to the emergence of the virus. Much is going to depend on the trajectory of coronavirus and whether there are further outbreaks as well as the distribution of the much-needed vaccines. "


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