Remittances have become an integral part of the Dominican Republic’s economy. Furthermore, remittances in the Dominican Republic have helped alleviate some of the economic consequences of the COVID-19 pandemic, reducing poverty throughout the country.
What Are Remittances?
Remittances are money or goods that immigrants send back to their families in their countries of origin. Their use has been growing significantly in the past few years, particularly for developing countries. Data on the total financial value of remittances is not completely accurate because many of the transfers involved are unofficial and are difficult to track. However, the official value of remittances makes up a portion of each country’s GDP. For middle-income countries, remittances make up about 1.5% of the GDP, rising to close to 4% for low-income countries.
Remittances in the Dominican Republic
Remittances make up a significant part of the Dominican Republic’s economy, with estimates placing the value of remittances at about 8% of the total GDP in 2019 — double the average of most low-income countries. While some remittances come from Europe and other Latin American countries, a staggering 75% come from the United States.
The use of remittances has grown rapidly in the past three decades. In 1990, the total value of remittances sent to the Dominican Republic was around $300 million, but by 2020, the amount rose to more than $8 billion. Remittances help support people’s livelihoods and the overall economy, which is why remittances are so important to the Dominican Republic.
Remittances During the Pandemic
The COVID-19 pandemic did affect the overall flow of remittances, but not as much as predicted. The total value of remittances worldwide dropped just 1.6% from 2019 to 2020, which is quite insignificant considering the more drastic impacts of the pandemic. However, for the Dominican Republic and a few other Latin American countries, the value of remittances received actually grew in 2020.
The start of the pandemic caused a sharp decline in remittances, then stabilizing throughout the rest of the year and eventually resulting in overall growth. In fact, by June 2020, the Dominican Republic received 25.7% more remittances compared to June 2019. Remittances were able to stabilize or grow because many remittance-reliant immigrants in the U.S. and Europe were able to retain their jobs or acquire new jobs quickly after the start of the pandemic.
Remittance Impacts on the Economy
In the years before the pandemic hit, the Dominican Republic experienced a growing economy with reduced poverty and a larger middle class. Therefore, the recession caused by the COVID-19 pandemic delivered a blow to the nation. The economy shrank by 6.7% in 2020 due to the effects of the COVID-19 pandemic. However, the growth in remittances in 2020, after the initial pandemic-induced decrease, helped keep the Dominican Republic’s economy from plummeting in size. The consistent and growing prevalence of remittances in the country’s economy has been an indicator of future growth.
The Dominican Republic’s economy saw positive growth in the second half of 2020 that will likely continue into 2021. Because other important sectors of the economy, such as tourism, will recover more gradually, remittances will play an ever-larger part in the economy’s recovery and the decrease in poverty.
– Ritika Manathara