Page 18 - Caribbean-Central America Profile 2018

REGIONAL

CARIBBEAN-CENTRAL AMERICA PROFILE 2018

FINANCE

External factors that are important drivers of any country that seeks stable and sustainable America and Caribbean region remittance
growth in Central America and the Caribbean economic development must act quickly and flows are projected to grow 6.6 percent in 2017,
are expected to remain slightly stable in 2017, boldly to incorporate new technologies into given the low-base effect. Remittances in other
or even show moderate improvements. On production processes. The consolidation of the developing-country regions are forecast to
the other hand, the gradual increase in world globalization triad (developed economies of the
interest rates, led by rises in the Federal Funds United States, Western Europe and East Asia) pick up modestly in the next two years due to
Rate and the slow unwinding of the large has had an impact on inflows into Latin America growth accelerating in most remittance-sending
increase in the Federal Reserve’s balance sheet and the Caribbean. countries.
since the Global Financial Crisis may eventually Nevertheless, downside risks remain, including
negatively affect global liquidity. But, overall, The Economic Commission for Latin America
it is expected that the global environment will and the Caribbean (ECLAC) expected the continuation of de-risking by correspondent
remain neutral for the region soon – particularly economic activity in the region to pick up banks, the possibility of increased
if potential protectionist policies in the U.S. do slightly (1.1 percent) in 2017, which is unlikely protectionism, heightened policy uncertainty,
not materialize, at least to the degree expected to lead to greater FDI for domestic markets and rising geopolitical tensions. Structural
early in 2018. and infrastructure development. Moreover, the headwinds to remittance flows may arise due
declining return on investments in some key
Around the world, exporters of commodities, sectors, such as telecommunications, may make to anti-immigrant sentiments. These sentiments
especially fuel, are particularly hard hit as them less appealing to foreign investors. are expressed in proposals to impose taxes on
the adjustment to the loss in commodity remittances, although such taxes are not easy to
revenues continues. Declining commodity The situation among countries and sub regions administer, especially as remitters may divert
revenues resulted in significant worsening has been heterogeneous, but few economies saw flows to informal channels.
of fiscal balances in commodity-exporting higher levels of FDI. Mexico failed to maintain
countries. Although the regional structural the growth of previous years with FDI falling The cost of sending money continues to be
deficit corrected partially in 2016–17, the fiscal by 7.9 percent. FDI in Mexico remained at exorbitantly high and regressive, well above the
impulse is expected to turn positive in 2018 and historically high levels and the country was the Sustainable Development Goal (SDG) target of
remain broadly neutral thereafter. Short-term second largest host country (19 percent). Inflows
risks are broadly balanced, but medium-term into Colombia rose by 15.9 percent, making 3 percent. According to the Remittance Prices
risks are skewed to the downside. Stronger it the economy with the third highest inflows Worldwide database, the global average cost of
confidence and favorable market conditions (8 percent of the total). This was the result of sending remittances of $200 (inclusive of all
could spur pent-up demand. At the same time, a major acquisition in the energy sector and fees and charges) remained at 7.45 percent in
in an environment of high policy uncertainty, higher investment in services, although inflows 2017.
risks to currently favorable market confidence still did not reach the levels seen at the peak of
and asset valuations could materialize, leading the commodity price boom. In Central America, As remittances bring many benefits, policies
to a tightening of global financial conditions. 44 percent of inflows to the sub region went to should help the development of formal financial
Uncertainties arising from the debate about Panama, which saw its fourth consecutive year channels for migrants to send money home
fiscal reform in the United States have been of growth (up 15.9 percent), while Costa Rica and on reducing the costs of sending money,
another factor. Among the main measures received 27 percent, up by just 1.1 percent. including through new solutions like mobile
expected to be included in this reform is the In the Caribbean, the Dominican Republic
proposed 20 percent import tax. According to received 49 percent of inflows to the sub region, money.
multiple estimates, this measure could entail a up 9.2 percent. Jamaica was in second place, Effective policies to improve the security
substantial appreciation of the dollar that would with 16 percent of the total and a fall of 14.5 situation in many Central American and
have major macroeconomic repercussions percent. The members of the Organisation of Caribbean countries may also relieve key
around the world, particularly on trade and Eastern Caribbean States (OECS) received 5.8
financial flows. percent less than in 2015, and accounted for 11 bottlenecks to the productive use of remittances,
percent of inflows to the sub region. including their greater use for investment in
Several developing countries and regions small businesses.
that had benefited from the price boom in In line with the global economic outlook,
natural resources saw their FDI inflows drop. remittances to developing countries are For countries that are highly dependent on
One new development is China’s increasing expected to grow at about 3.3 percent in 2017, remittance inflows, it is important to ensure
importance as a foreign investor. Chinese to $444 billion. Recent indicators suggest adequate financial buffers—such as central
transnational companies have played a large that economic activity in high-income and
role in increasing FDI flows to developing developing economies has firmed up, supporting bank reserves—to compensate for a potential
economies. Meanwhile, the rapidly shifting a positive outlook for 2017. Global financing loss in remittances associated with negative
international technological frontier following conditions have also improved notably, after a economic shocks or shifts in immigration policy
the fourth industrial revolution means that sharp tightening at the end of 2016. The Latin in host countries.

A-12 Caribbean-Central American Action