The other hedge: Remittances from overseas workers have helped to take the edge off of economic shocks

Remittances from overseas Filipino workers (OFWs) are vitally important to the economy and, like business process outsourcing (BPO), these revenues tend to take the edge off any economic shocks. In a further similarity to BPO revenues, remittances are also comparatively easy to accrue, requiring no capital investments, equipment or facilities, and they pose no environmental concerns. Remittances also help prop up the country’s external position, providing welcome support to the economy. But as the economy develops and local wages rise, the contribution of remittances to the economy may eventually taper off as prospects for domestic employment increase.

NUMBERS: In 2012 the Philippines’ central bank reported that total remittances in 2012 reached $21.4bn, or 8.5% of GDP. This represents a 6.3% increase over 2011, and initial results for 2013 have indicated that revenues will continue to grow. In August 2013 remittances rose 6.8% year-on-year, allowing the total for the first eight months to register a 5.7% increase over the same period in 2012. In addition to the considerable funds remitted by OFWs, the phenomenon also provides disproportionate benefits to the economy. Remittance income tends to be counter-cyclical, and this held true even during the 2008-09 global economic crisis, despite concerns of a severe reduction in remittances from the US. Filipinos work almost everywhere – in the Gulf, the EU, North America and on the high seas – and they tend to be highly adaptable. While many are skilled, licensed and semi-skilled, OFWs have demonstrated they will go wherever the jobs are. As a result, the income tends to be fairly consistent over time, despite recessions.

BALANCE OF PAYMENTS: Remittance receipts are particularly helpful to the economy for several reasons. They represent foreign currency that appears immediately in central bank statistics, and the rise of remittance income is to a great degree responsible for the country’s improved balance of payments and higher reserves. On the ground, the money is very important as well. It tends to get distributed to some of the most needy in society and typically goes towards providing necessities, such as food and health care, and important basic investments, like housing and education. Rather than trickling down through large corporations, it goes directly into the pockets of the average consumer. The knock-on effects are significant. Money flows right into the economy as individuals make purchases, increasing employment, and also results in better health and more education.

This is not lost on government institutions such as the central bank, which has advocated for financial education. Financial education programmes are being implemented locally and abroad to increase the level of savings and investments among OFWs and the recipients of their remittances. Inroads are being made: the latest survey from the bank revealed that 34.3% of respondents said they used a large portion of remittances for savings compared to only 7.2% in the first quarter of 2007, when the bank included the monitoring of behaviour of remittance recipients.

While most economists agree that OFW remittances are important to the Philippine economy, concerns are now being raised that this phenomenon may have some detrimental effects. There is growing awareness that the country is losing some of its most talented people and that this outflow slows the creation of domestic industry and business. The most resourceful individuals tend to leave and the talent pool is hollowed out. The social consequences of remittances are also getting some attention. Overseas work breaks up families and can lead to problems for youth.

In the end, it is likely that any problems caused by remittances will solve themselves. The current success of the Philippines and steady flow of remittances into the country have resulted in a strengthening of the currency. Working overseas becomes less attractive as the domestic economy grows and the peso rises. As conditions improve, many OFWs may opt to return home in order to exploit local opportunities.