Dwindling remittances
FOR YEARS the Philippine economy benefited from the billions of dollars sent home by the more than 10 million overseas Filipino workers. Hailed as modern-day heroes, these workers remitted a record $24.31 billion in cash last year, with the bulk of the money coming from the United States, Saudi Arabia, United Arab Emirates, United Kingdom, Singapore, Japan, Hong Kong and Canada. Also last year, the Philippine Overseas Employment Administration reported that 1.6 million Filipinos were deployed abroad, and that job orders jumped 11 percent to 878,609, of which 44 percent were for workers in Saudi Arabia, Kuwait, UAE, Taiwan and Qatar.
The Philippines is one of the world’s top labor exporters. It is the third-biggest recipient of cash transfers, after India and China. Money sent home by OFWs were equivalent to 8.5 percent of the country’s gross domestic product in 2014. These funds, in turn, are a strong driver of consumer spending, which makes up two-thirds of the domestic economy. These inflows also ensure a steady supply of dollars to the economy to cover the money needed to pay for imports.
Last week, however, an alarm was raised: Growth in remittances this year may not be as robust. The reason is that some parts of the world where many OFWs are based face economic difficulties. While the Bangko Sentral ng Pilipinas noted that remittance growth recovered in February to 4.2 percent, the money sent home by OFWs during the preceding month grew by just 0.5 percent. For the first two months of the year, remittances were up by 2.4 percent, which is among the weakest growth rates for remittances in years.
The signs were there in the last quarter of 2014. In November, cash transfers from overseas Filipinos grew at their slowest pace in more than five years. According to data from the BSP, growth in OFW remittances slowed to 2 percent in November from October’s 7-percent expansion. While the slower growth in November was likely a result of the weaker peso—which meant that OFWs could send less dollars back to the Philippines and still be able to meet expenses in the country—that was also the time when crude oil prices started to plummet. Growth in remittances in November at just 0.1 percent was the slowest since January 2009, or months after the start of the 2008 global financial crisis.
The concerns are coming from two fronts. First, economic growth in the developed world has remained stagnant. While the American economy is showing early signs of recovery (an indication is the strengthening dollar), economic activity elsewhere—particularly in the euro zone—has remained weak. The second is cheap crude prices. The price of the benchmark West Texas Intermediate crude oil has nearly been halved from $93.82 a barrel in 2014.
In a recent note to its clients, Standard Chartered Bank expressed doubt that the strength of remittances would hold up in the coming months, given the weaknesses in countries hosting OFWs. Remittances from Asia have contracted for three consecutive months and growth in remittances from Europe declined for eight consecutive months, the bank said. It added that inflows from the Middle East could also ease if low oil prices were to impact employment prospects and wage growth for overseas workers. A big portion of OFWs work in the Middle East, a region that relies heavily on revenues from oil.
A weakening in remittances should be expected and the government must act accordingly. It is worth studying how the billions of dollars in remittances received by the Philippines have actually impacted the overall economy in general and the family beneficiaries in particular. Can it be that only the owners of shopping malls, fast-food chains, cell phone companies and condominiums gained so much from the OFW windfall? This observation follows the lackluster expansion of small and medium-size (SME) manufacturing or micro-financing for small businesses, or even the agricultural sector, which continues to lag behind in terms of technology and infrastructure.
It will really be a shame if the billions of dollars sent home by Filipino migrants toiling abroad only went to industries feeding on consumers’ expenditures instead of growing such sectors as SMEs. The government should realize that it cannot forever depend on OFW remittances to fuel or sustain consumption-induced economic growth.
