Colombia is the fourth largest economy in Latin America. Remittances contribute to Colombia’s economic well-being and growth. Over the years remittance patterns have undergone many changes. The most vital and sudden of these is the recent crisis caused by the global pandemic. Here is an overview of past trends and future prospects for remittances to Colombia.
Remittances are important to Colombia’s GDP. The World Bank recorded that Colombia showed a strong recovery from a GDP slump of 1.7% in 2017 to a 3.3% growth in 2019. The country achieved this growth through private consumption and investments. Remittances from foreign countries improve the purchasing power of recipients. This contributes to increased domestic spending and consumption.
Remittances to Colombia have been continuously increasing since 2000. In 2003 they reached an all-time high at 3.25% of GDP. Between 2006 and 2014 remittances declined from 2.42% of GDP to 1.09% GDP. Based on the IMF balance of payments database remittances contributed to 1.92% of Colombia’s GDP in 2018. The trend was moving towards revival by 2020, with a 7% growth just before the COVID-19 outbreak.
Quality of life
Remittances help improve standards of living. According to a combined OECD-World Bank study remittances majorly contribute to household savings. They also increase domestic expenditure on consumer durables. Remittances play an important role in improving children’s health and education. For these reasons the UN has made it one of its goals to see global remittances grow.
As per a study by Inter-American Development Bank in 2007, 50% of the remittances flowing to Colombia originated in the United States. By 2017 the distribution had changed considerably. 80% of foreign remittances reaching Colombia now originated from four countries. These are the US (32%), Venezuela (31%), Spain (15%), and Ecuador (7%). In 2019, Colombia received $6.7 billion in remittances.
Banks have lost the top spot as remittance channels to Colombia. Nimble money transfer operators (MTOs) with their customer-centric processes are gaining ground fast. MTOs consistently offer better rates and transfer fees than banks. Due to the purely online nature of transfers the MTOs are also considerably faster than banks. Colombian expats living abroad now prefer to send money online to ensure the living standards of their families back home.
Impact of COVID-19
The recent pandemic had a sizable economic impact on Colombia and across the world. To address the challenges faced by low and middle income countries (LMICs) the UN established a COVID-19 response and recovery fund. Similar measures are underway in Colombia. According to Banco de la República, Colombia’s central bank, the country’s economic loss may amount to 5.9 trillion Colombian pesos, or up to 6% of the country’s GDP. The government is working to implement OECD recommendations in an effort to revive the economy. It may roll out a stimulus package of 14.8 trillion Colombian pesos to ensure the provision of necessary resources for the nation’s vulnerable sectors.
Remittances during COVID-19
Migrant workers are among the groups that face the worst of the economic impacts of the pandemic. According to ILO 1.6 billion workers in informal sectors may lose their jobs. This will inevitably cause a decline in remittance flows. The World Bank predicts a drop of 20% in global remittances, which amounts to $110 billion. Remittances are the lifelines of millions who live in nations with limited social safety nets and less diversified economies. It is essential that the international community supports the COVID-19 response and recovery efforts in LMICs.
Colombia must take immediate measures to address job and wage loss. In the longer term Governments should act to revamp banking and international commerce. They must encourage entrepreneurship to increase employment and stability. Streamlining remittance inflows can also go a long way.
The COVID-19 economic crisis revealed several deep-rooted problems in the global financial framework. These include the dependence of healthcare systems, excessive reliance on banks, and vulnerabilities in supply chains. The crisis profoundly changed several aspects of our economies. It also revealed new opportunities and growth areas. Exploring these opportunities can spur the recovery and growth of developing economies such as Colombia.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.