A Remittance Crisis Looms in Central America
A potential lapse in temporary protected status threatens billions in remittances — a significant macroeconomic shock to Central America. The post A Remittance Crisis Looms in Central America appeared first on Global Finance Magazine .
A looming crisis threatens Central America's economies, as hundreds of thousands of Salvadorans and Hondurans lose their temporary protected status (TPS) in the U.S. This loss of work permits and job security could leave these migrants jobless and facing deportation. According to the World Bank, remittances from these countries make up 27.5% and 30.1% of GDP, respectively.
For Haitians and Venezuelans, TPS designation has already been revoked. Despite the U.S. government's claim that conditions in El Salvador have improved, over 93,000 arrests have occurred, mostly targeting young males. The temporary protected status for Salvadorans was set to expire on September 9, but the Department of Homeland Security failed to publish a decision within the statutory timeframe, leading to uncertainty.
The Honduran government announced the end of TPS designation in July 2025, with the effects taking place two months later. While a federal judge overturned this decision, a recent Supreme Court ruling has limited judicial review. U.S. authorities have stated there will be no further extensions or grace periods, despite Honduran President Nasry Asfura's request for an orderly return and continued work permits.
Economists predict the loss of TPS and work authorization would force thousands into informal work, with a significant economic impact. Kaffati estimates that if 55,000 to 70,000 people stop sending remittances, it would equate to between 0.5% and 1% of GDP. While manageable, this abrupt contraction of economic activity would be a shock to the region.
A recent study by a Honduran think tank suggests that returning migrants should be viewed as assets, bringing skills to fields like business process outsourcing, construction, tourism, and logistics. Remittances have long served as a substitute for employment policy, with over 3 million Hondurans relying on them. However, an abrupt contraction leaves little room to react. Similar situations are expected for citizens of Ukraine, Lebanon, and Sudan.
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