Reliance on remittances
For the past five years, the Philippines has dodged the recession plaguing the developed world mainly because of the billions of dollars sent home by some 10 million Filipinos living or working abroad. But the picture is no longer that rosy. Last week, the Bangko Sentral ng Pilipinas reported that in March, remittances from overseas Filipinos grew at their slowest pace in nearly four years.
Although the first-quarter expansion remained above the BSP projection of a 5-percent growth for 2013, the monthly increase so far has not been encouraging. Remittances have been slowing down since January, when growth eased to 8 percent from 9.7 percent the previous month, slowing to 6 percent in February, and further to 3 percent in March when cash remittances coursed through banks reached $1.75 billion. This is the slowest expansion since August 2009, when remittances grew 2.8 percent. Growth in the last three years was consistently above 4 percent and even surpassed 10 percent during certain months.
The role played by remittances in propping up the economy will be put to a test this year as the economy is not expected to grow as fast as it did in 2012. ING economist Joey Cuyegkeng, for one, said he expected that growth in 2013 would be lower than the 6.6-percent expansion last year despite the election spending because some of the growth indicators in the first quarter were on the downtrend. He cited exports, which posted an almost flat growth at 0.1 percent in March after performing negatively for two consecutive months.
The Singapore-based DBS Group also said in a research note that exports growth was “likely to be in the low-to-mid single digits” if a moderate recovery in major markets would occur in the coming months. The government is looking at a rather optimistic exports growth of 10 percent, but DBS noted that exports had been underperforming this year and that, in the first two months, the rebound in electronics did not happen. In fact, electronics exports plunged 34 percent year-on-year during the period.
The BSP has seen the writing on the wall, projecting growth in remittances to decelerate further over the medium term as offshore jobs available for migrant workers move closer to saturation.
Not that the situation is hopeless. The BSP had pointed out that the Philippines could still enjoy substantial increases in foreign exchange inflows if it focused efforts on tourism, exports and the BPO sector. “The government [must push] for the further development of sectors that will help the country depend less on remittances [as far as its foreign-exchange needs are concerned],” BSP Governor Amando Tetangco Jr. said. He noted that a sustained tourism campaign could increase tourist arrivals and tourism revenues.
HSBC was more direct to the point in stating what the Philippines needed to do to turn its fortunes around. After consolidating power in the May 13 midterm elections, President Aquino should now “sink his teeth” into substantial reforms to raise economic productivity and efficiency, HSBC said. It said the outcome of the elections—with the administration poised to take control of both the House and the Senate—had raised expectations that the President would use his stronger mandate to take stronger steps to address the country’s structural challenges, foremost among them low investments and jobs growth.
“Raising public investment, loosening of FDI (foreign direct investments) restrictions on foreign ownership, and improving the business environment are all required reforms to address the economy’s structural weakness,” HSBC said. Since assuming office in June 2010, the Aquino administration has made gradual progress to lift the Philippines’ profile, raising the efficiency of public spending and closing tax loopholes to raise revenue collection, and instilling confidence in governance. However, the bank pointed out, these reforms were not enough to raise revenues, reduce regulatory bottlenecks, and attract foreign investments to strengthen the manufacturing sector, improve productivity, and diversify the economy.
President Aquino’s State of the Nation Address in July will provide him a venue to expound on his administration’s reform agenda for the remainder of his term. He should include in it reforms that will boost investments and create jobs that, in the long run, will reduce the country’s reliance on remittances from Filipinos working abroad, and indeed allow them to stay home.
