Remittances from overseas workers are expected to climb

November 18, 2021

MANILA CITY – Improvements in the immunization program of nations where overseas Filipino workers (OFWs) are expected to increase remittance growth in the Philippines, as well as global economic recovery.

Last July, the Bangko Sentral ng Pilipinas (BSP) reported a 2.6 percent year-on-year increase in remittances to USD3.167 billion, with a 6 percent year-to-date increase to USD19.783 billion.

According to a research by ING Bank Manila senior economist Nicholas Mapa, the surge in remittances in July was “remarkable given that this was the greatest non-December level ever, with monies sent home in July matching those sent home during the Christmas season.”

“Secondly, the larger dollar amount shocked us because OFs (overseas Filipinos) had previously chosen to send home fewer remittances when the peso was weakening because exchange rate dynamics help recipients satisfy peso demands with fewer dollars sent home,” he explained.

On Wednesday, the local currency ended at 49 cents, but it has since fallen to 50 cents, owing to concerns about the epidemic and other factors.

“We should expect remittance flows to continue to rise in the next months, with OFs continuing to find ways to support domestic spending,” Mapa added. With job losses continuing to rise and the economy being sluggish, he predicted that OF remittances will make up the gap and stimulate local spending.

Remittance Graph

“Flows are improving as the global economy reopens, particularly in the United States, where a large portion of the flows originate,” says Security Bank Corp. In a Viber message, Chief Economist Robert Dan J. Roces remarked.

The United States, Malaysia, and South Korea accounted for the majority of the increase in cash remittances from January to June, according to the central bank.

The United States remained the largest provider of remittances, followed by Singapore, Saudi Arabia, the United Kingdom, Japan, the United Arab Emirates, Canada, South Korea, Qatar, and Taiwan. These countries together accounted for 78.4% of all cash remittances.

Personal remittances, which include in-kind transfers, increased by 7.3 percent to $2.936 billion in June from $2.737 billion the previous month.

In the first half of 2021, personal remittances climbed by 6.7 percent to $16.616 billion, up from $15.573 billion the previous year.

“Continued OFW remittance flows, along with a recovery in BPO (business process outsourcing) receipts, will help offset the country’s growing trade deficit and contain the impact on the current account,” he added.

Chief economist Michael Ricafort of Rizal Commercial Banking Corporation (RCBC) predicts that when some OFW-host countries achieve or approach community-level protection against the coronavirus disease 2019 (Covid-19), demand for OFWs and remittances would grow even more.

Because many OFWs are economic and medical front-liners, remittances to the Philippines have been “partially defying the epidemic,” according to Ricafort, who described them as “a symbol of resilience/bright spot/greenshoots.”

He claims that the continuing reopening of additional economies, particularly in hard-hit sectors such as leisure, travel, and tourism, will necessitate more workers, which will benefit OFWs.

“Continued rise in OFW remittances will help recovery in consumer spending, which accounts for about 70% of the economy, as well as support recovery in the country’s GDP (gross domestic product),” he said.

The continued durability of OFW remittances is likely to boost the country’s balance of payment (BOP) situation and gross international reserves (GIR).

Risks, however, exist, according to Ricafort, due to more contagious Delta and Lambda Covid-19 versions, among others.

Growth rebound

“To the degree that remittances coincide with global cycles,” it added for 2021, “we believe the V-shape global recovery would assist propel Philippines’ remittances growth to revive.”

“Moreover, the improvement in oil prices bodes well for a rebound in remittances from the Middle East.” Meanwhile, if immunization programs are expanded, more economic sectors are anticipated to reopen, and border restrictions on migrant workers, especially OFWs, are likely to be relaxed, leading to an increase in OFW deployment,” the report stated.

The uptick in remittances this year, according to Morgan Stanley, will help big-ticket purchases like houses.

According to data from the Bangko Sentral ng Pilipinas, the percentage of OFW households who put money aside from their remittances to buy a house fell to 4.8 percent in the fourth quarter of 2020, from 13.6 percent in the first quarter of last year, before COVID-19 wreaked havoc on the global and domestic economies. INQ

Philippines: Due to a low base effect, remittances grew at a faster rate in October, 2021

In October, remittances totaled USD 2.4 billion, marking a 13.1 percent increase in yearly terms, up from 12.7 percent in April. However, May’s performance, which was the highest since November 2016, was aided by a favorable base effect. Remittances totaled USD 30.6 billion in May, surpassing April’s figure of USD 30.4 billion. The 12-month rolling total for May showed a 4.4 percent increase year over year (April: 1.7 percent year-on-year).

The recovery in remittance inflows is fragile, according to Nicholas Mapa, senior economist at ING, who also commented on the FX outlook:

We’ve seen a good recovery in remittance flows as the international economy gradually reopens in 2021, but actual remittance levels have yet to return to pre-Covid 19 levels. While the constant flow of foreign currency sent home by migrant Filipino workers may assist to offset some peso weakening, remittances alone are unlikely to restore the currency’s recent decline. 

We expect PHP to stay under pressure in the near future, with the trade imbalance widening beyond remittance levels and financial outflows intensifying due to the general risk-off mood.”