Remittances drying up; capitalists are worried

The remittances of over seas Filipinos, which totaled around P24.8 billion or 10 percent of the country’s gross domestic product (GDP) in 2014, may be drying up, according to London’s Financial Times (FT), quoting data from the Bangko Sentral ng Pilipinas (BSP). 

An analysis of the BSP data suggested that both the composition and the total value of payments sent home by Filipino overseas workers or OFW are undergoing fundamental change, FT said in a report. “If recent trends continue, the domestic economy will have to make up for significant revenues lost from abroad.” FT said.

Remittances from OFWs make up a big chunk of the country’s economy; they are also a key driver of the consumer spending that accounts for two-thirds of economic output.

This massive inflow of capital has kept the current-account balance in the black despite the country’s chronic trade deficit and this phenomenon is making investors worry about the backlash if this source of economic windfall for the Philippines dried up.

More than 10 million Filipinos work overseas in a wide range of jobs — from seamen to engineers, domestic workers to nurses.

The value of the remittances is still growing, but last year’s growth of 5.9 percent was the weakest in five years.

The BSP data showed a significant change in the employment of Filipinos in the US, which has long been the most lucrative overseas jobs market and home to about 3.5 million expatriate Filipinos.

“Remittances from the US were worth $10.4 billion last year, or 42.6 percent of the total. That was up 4.7 percent in 2013, a much slower pace of growth than in previous years. The share of total remittances sent home from the US has fallen from almost 48 percent in 2008,” according to the FT.

The BSP figures also showed a more significant change in the number of “deployed workers” — or those with new or renewed overseas contracts, of which there were 1.84 million in 2013.

Only 3,306 such workers in 2013 were destined for the US and the number appears to be in decline, falling by an average of 2 percent a year between 2011 and 2013.

“If opportunities for new employment continue to fall, so, too, at some point will the numbers of those employed,” the FT said.

However, the slowdown in the growth of remittances from the US is being offset by those from a rising number of Filipino workers in the fast-growing economies of the Middle East and Asia, also according to the BSP figures.

The Middle East accounted for 22 percent of remittances in 2014, up from 16 percent in 2011, while Asia’s share rose to 14.6 percent last year, from 12.8 percent in 2011.

“Remittances per worker in the US are about double those from the Middle East and Asia. If the shift from West to East continues, it will pose a threat to overall volumes and, potentially, to consumer spending and economic growth at home,” the FT said.

The Middle East accounted for 47 percent of all deployed overseas Filipino workers in 2013, which grew by more than 8 percent a year over the previous three years. In Asia, with 26 percent of the total, the number was growing at more than 20 percent a year.

In another analysis, Asian Nikkei Journal said the Philippines’s strong economic numbers mask serious problems.

“Besides endemic corruption, the country’s dependence on overseas remittances has slowed the development of infrastructure and led to stagnant job growth, particularly in manufacturing,” it said. “Traffic jams are ubiquitous. The country’s rickety infrastructure has discouraged overseas investors from making bets on the country.”

Cumulative direct foreign investment (FDI) in the Philippines is only 20 percent as high as that in Indonesia and about 60 percent that of Vietnam, according to the United Nations Conference on Trade and Development.

In a survey of CEOs by the World Economic Forum, the quality of Philippines infrastructure, including railways, ports and airports, was ranked the lowest among the six big economies of the Association of Southeast Asian Nations.

“Aquino’s six-year term ends next year. The economic gains of recent years will hinge on whether his successor, whom Filipinos will choose in the May 2016 presidential election, continues the reforms Aquino has begun,” said Takayuki Miyajima, an economist at Japan’s Mizuho Research Institute.