Remittances supporting the Philippines economy

The Philippine economy’s reliance on remittances from overseas Filipino workers is often seen as a vulnerability and a path by which turbulence in foreign markets can reach local shores. Those fears recently came to the fore after the growth of remittances slowed in 2014 and news reports appeared in the summer of 2015 suggesting remittances were in peril. Economists say the worries are overblown, however. Remittances have proved resilient over the years, growing even during the 2008-09 global financial crisis. However, there is no doubt that the rate of expansion has slowed, and a return to the rapid growth that prevailed before 2009 is considered unlikely.

Cash remittances grew at an average rate of 16% a year between 1989 and 2008, according to Bangko Sentral ng Pilipinas (BSP). The overseas worker tradition began in the 1960s as a plan to earn hard currency by sending nurses to the US, and grew in the 1970s into construction work in Gulf countries and seafaring. Millions of Filipinos have settled abroad, and many of them continue to send money to relatives in the Philippines. The Commission on Filipinos Overseas (CFO) estimated that there were 10.24m Filipinos living or working abroad at the end of 2013, according to the latest figures available. The US has the largest permanent Filipino community, with 3.5m, while the Gulf has the most migrant workers, at 2.4m.

The BSP’s count of cash remittances came to $24.6bn in 2014, equal to 12% of the Philippines’ household consumption and 8.6% of GDP. Total remittances came to $27bn, including “in kind” wages and transfers. In 2015 cash remittances and wage payments from abroad totalled $25.8bn.

Bernardo Villegas, an economist who chairs the Centre for Research and Communication at the University of Asia and the Pacific, told OBG he believes $2bn-3bn of remittances are uncounted. President Benigno Aquino III recently ordered the Bureau of Customs to limit random inspections of repatriate boxes sent home by overseas workers after complaints that items were being stolen or damaged. The growth rate of remittances averaged 6.8% a year between 2009 and 2014, but year-on-year growth in the first seven months of 2015 came to 4.8%. The slowdown is largely due to the fact that high growth rates are harder to achieve from a higher base.

Sources

According to BSP data, permanent foreign residents and land-based migrant workers (including for the offshore oil industry) account for 77% of remittances, and seafarers for 23%. Beginning in 2008 remittances from permanent foreign residents and land-based migrant workers slowed, while a slowdown in remittances from seafarers has followed since 2013. The BSP publishes a breakdown of remittances by origin, which shows the US as by far the largest source, accounting for 42% of cash remittances in 2014. However, the BSP’s data cannot distinguish remittances that are transmitted through the US financial system from elsewhere. Other major sources were the Gulf (22% of cash remittances in 2014), East Asia (15%) and Europe (15%).

Resilient

Events that seem important to remittance flows often turn out to have little impact. For example, a crackdown on informal employment in Saudi Arabia reduced Filipino migrant worker numbers there from 1.55m in 2011 to 1.03m in 2013, according to the CFO. Yet remittances from Saudi Arabia accelerated, according to the BSP. The sharp decline in oil prices in late 2014 was followed by only a mild deceleration of remittances from the Gulf region in the first seven months of 2015. Another worry was the pull-out of some US banks from their remittance businesses after the US government fined HSBC $1.9bn in 2012 for failing to prevent money laundering. Some Philippine remittance firms lost US marketing networks, but the proliferation of online services has made the US-to-Philippines remittances market more competitive and easier to access than ever.