Latin America's Remittance Outlook: Navigating New Risks

Latin America and the Caribbean experienced a momentous year in 2024, with remittances reaching an unprecedented $160 billion, constituting approximately 2.5% of the region's Gross Domestic Product (GDP). This substantial inflow, highlighted by the Inter-American Development Bank (IDB), underscores remittances' critical role as an economic lifeline for numerous nations within the region. However, this established paradigm is poised for a significant structural transformation, driven by evolving policy landscapes and economic shifts.

The impending changes include a stricter stance on immigration from the Trump administration and the introduction of a 1% tax on remittances, sanctioned under the One Big Beautiful Bill Act, slated for implementation on January 1, 2026. These developments have triggered widespread concern across the region. Further compounding this challenging outlook are projections from J.P. Morgan Private Bank, which forecast a slowdown in job creation within the United States, with growth anticipated at 2.7% in 2025 and a further dip to 2.3% in 2026. Such economic deceleration in the primary source country for remittances is expected to exacerbate existing pressures on recipient economies.

In response to this complex backdrop, governmental bodies, alongside private and central banking institutions, are actively seeking strategies to mitigate the potential adverse effects on remittance-dependent economies, particularly those in the Caribbean. As Patrick Dine, CEO of consulting firm PSD Global, observes, "If you’re a country highly dependent on remittances, you’re now thinking about how to incentivize other parts of the economy in the long run, even if only to circumvent some of the risks at this point." This sentiment reflects a growing recognition of the need for economic diversification and resilience.

The implications of a sustained decline in remittances extend beyond immediate household income. Ajay Srivastava, cofounder of the Indian think-tank Global Trade Research Initiative, points out that such a drop could significantly impact a receiving country's currency by diminishing the supply of US dollars within the economy. This, in turn, constrains investment capabilities. Srivastava explains, "When remittance inflows decline, households prioritize consumption needs over savings and investments," illustrating a crucial shift in economic behavior that can hinder long-term development.

Governments are already implementing proactive measures to identify and foster alternative economic avenues. Juan José Li, a senior economist in Mexico at BBVA Research, highlights specific national efforts: "Different governments in the main remittance-receiving countries are looking for strategies to lessen the impact of the new tax on households that depend on these resources." Mexico, for instance, is concentrating its efforts on enhancing financial inclusion for remittance senders in the US and recipients in Mexico, primarily through a dedicated card issued by the government institution Financiera del Bienestar.

Data Remains Inconclusive – For Now

Despite the prevailing anxieties concerning remittance trends in Latin America, preliminary data for 2025 presents a mixed picture, according to research from Spanish financial services giant BBVA, a prominent lender in the region. Their figures reveal a notable divergence in remittance flows.

Specifically, remittance flows from the United States to Mexico experienced a sharp contraction during the first half of 2025, recording a year-over-year decline of 5.6%. This reduction was amplified by a strengthening Mexican peso, which saw a more than 10% appreciation against the US dollar, consequently intensifying the impact on the disposable incomes of recipient families. In stark contrast, several other Central and South American nations reported robust double-digit increases in remittances during the same period. These included Honduras (+25.3%), Guatemala (+18.1%), El Salvador (+17.9%), the Dominican Republic (+11.2%), and Colombia (+13.9%).

Given these varied outcomes, Juan José Li suggests that there isn't yet "conclusive evidence linking higher numbers of apprehensions or stricter border enforcement with remittance trends" in the immediate term. However, this perspective may not capture the full extent of the long-term risks. John Price, co-founder of Payments and Commerce Market Intelligence, a research and advisory firm, emphasizes that the true risk lies in a potential decline of migratory inflows into the US, which is fundamental for sustaining long-term remittance growth. Price explains, "Since remittance flows are typically driven by new migrants sending money back home, this reduction in migration curbs future remittance growth." He further notes that "History shows that remitters slow their money sending dramatically after three to five years of living in the US." Patrick Dine concurs, anticipating a potential "lagging effect for remittances" as a result of these demographic shifts.

Dwindling Migrant Inflows

Recent US government data provides compelling evidence of a significant shift in immigration patterns. Arrests by Immigration and Customs Enforcement (ICE) surged dramatically in March 2025, reaching 19,000, a more than 100% increase from the average of approximately 8,000 arrests per month between 2023 and 2024. While this number is relatively small compared to the over 11 million unauthorized immigrants residing in the US, it conveys a potent message. As Dine articulates, it signifies that "individuals should be more cautious when making the decision to immigrate, even if they have the means of achieving a legal status in the US."

Beyond enforcement actions, the rhetoric surrounding deportation from the Trump administration has, by itself, "had a chilling effect on migration," according to Price. He notes, "Potential migrants, discouraged by highly publicized raids and threats, are voluntarily turning back before reaching the US." This shift in sentiment is having broader demographic repercussions.

An analysis by the Pew Research Center, based on US Census Bureau data, reveals that the US foreign-born population decreased by approximately 1 million people in the first half of 2025. This marks the first such decline since the 1960s, signaling a profound change in migratory dynamics. Furthermore, US government data indicates that the US-Mexico border may be nearing a virtual shutdown for new undocumented migrants. Apprehensions at the border, which stood at 250,000 in December 2023, plummeted to a mere 7,000 by March 2025. This dramatic reduction underscores the effectiveness of stricter border enforcement.

BBVA's Li acknowledges the elevated risks under the new immigration policy: "If deportations of migrants increase in the second half of 2025 and continue over the remaining three years of the Trump administration, the flow of remittances to Latin America and the Caribbean could be significantly affected." Echoing this concern, monthly data from the latter half of 2025 shows a deepening fall in remittances to Mexico, with July figures recording a dismal 16% year-over-year drop—the largest on record.

Seeking Alternative Payment Channels

Adding another layer of complexity to the remittance landscape is the newly enacted tax. The initial legislative proposal suggested a substantial 5% tax, applicable to all payment methods but exclusively targeting non-US citizens. However, subsequent revisions brought the rate down to 1%, making it applicable to all remittance senders, including US citizens. Crucially, this tax applies solely to transfers initiated through physical payment methods, such as cash transactions. The Joint Committee on Taxation estimates that this levy will generate approximately $26 billion over the next decade, funds that are earmarked to offset a portion of the estimated $170 billion expenditure on immigration enforcement and border-related operations imposed by the same bill.

Experts, however, caution that even a 1% remittance tax could pose significant hardship for lower-to medium-income migrants, especially those who face challenges in adapting to modern, digital payment methods. Dine emphasizes the long-term nature of this adaptation: "Many of the immigrants who use cash have difficulties or are hesitant to use legal payment methods in the US. It takes time for them to adapt."

In this environment of increased taxation and scrutiny, the burgeoning Latin American cryptocurrency payments sector anticipates a surge in cash inflows. Following a remarkable 40% increase in 2024, as reported by Chainalysis data—with stablecoins accounting for nearly 90% of the total volume—crypto giant Binance now recognizes the region as the world's fastest adopter. This trend, further fueled by historical local currency volatility, is igniting a regional "gold rush" in fintech. Companies are actively vying to secure access to rapid, seamless, and potentially tax-free cross-border transactions.

PCMI's Price notes, "Fintechs across Latin America are onboarding stablecoins to address customer demand for transparent and stable remittance tools." Nevertheless, he introduces a critical caveat: "This evolution introduces new risks. Stablecoins remain lightly regulated… This raises concerns among regulators and incumbents who fear that crypto might evolve into an end-run around compliance obligations." The interplay between innovative financial solutions and regulatory oversight remains a key area of watchfulness for the future of remittances in the region.