Remittances surge in May

Family remittances sent to El Salvador set a monthly record in May of almost $900 million. The flow of dollars into El Salvador from those living abroad during the first five months of the year was 16% higher than the same five month period in 2024, a very significant increase according to El Salvador's Central Reserve Bank.

Remittances are already one fourth of El Salvador's economy.  The dollars earned abroad, overwhelmingly in the US, have lifted families out of poverty and are one of the chief engines of any economic growth in the country.  

Economists interviewed in La Prensa Grafica pointed to Donald Trump's deportation policies as a main driver of the surge in remittances.  Families are sending money out of the US into bank accounts in El Salvador out of fear of being deported and losing access to their assets in the US.

"If we look at the behavior of deposits in the financial system, they have grown enormously. The acceleration in remittance sending has occurred since this year, when President Trump took office and began implementing anti-immigration measures." Rommel Rodríguez, Economist

Perhaps another motivator was an anticipation of a tax on remittances in Trump's "Big Beautiful Bill."  The version of the budget bill initially passed by the US House of Representatives contained a 3.5% tax on remittances sent by persons who were not US citizens or legal permanent residents. Salvadorans may have been advancing remittance payments prior to any tax coming into effect.  In the final bill signed into law by Trump, the tax was reduced to 1%.  Even at 1%, that tax will take $85 million out of the Salvadoran economy, if remittances were at the 2024 level of $8.5 billion.  

Why this new tax on some of the poorest persons living in the US?  The tax itself is part of the anti-immigrant MAGA agenda.  The thought of the Republican sponsors is that there will be less incentive for economic migrants to come to the US if they have less after-tax money to send back to families at home.  

Somewhat paradoxically, remittances from the US to Mexico actually declined in May by 5% compared to the surge in remittances to El Salvador and other Central American countries.

Trump's immigration policies heighten economic uncertainty from El Salvador.   With a massive  increase in funds just approved in the US Congress for apprehending and deporting undocumented immigrants, remittance flows may be negatively impacted just as thousands of uprooted deportees arrive back in the country.