By Arno Maierbrugger
Gulf Times Correspondent
Bangkok
For the first time since 2003, remittances from Overseas Filipino Workers (OFWs), a major contribution to the country’s economy and an important source of foreign currency, dropped in absolute value terms. In a surprise announcement last week, the Philippine central bank said that cash sent back home from OFWs amounted to $2.04bn in August which is 0.6% lower compared to $2.06bn in the same month of the previous year.
This confirms the bearish pattern already witnessed in July when growth in remittances was just a mere 0.5%, far from the average growth trend of remittances of around 5% monthly.
While there was still growth over the period from January till August, it showed a notably slower pace compared to previous years, namely 4.3% versus 5.8% over the same period in 2014. However, the Philippine government’s target for remittances growth in the full year 2015 remains at least 5%.
Economists cite a number of reasons for the slump, but one major cause is the low oil price which affects the income situations of Filipinos working in the Middle East. According to the central bank, growth in remittances from Filipinos based in the Middle East was just 6.77% to $3.56bn from January to August compared to $3.36bn in the same period last year, while growth was 22.5% and 25.4% in the corresponding periods of 2014 and 2013, respectively.
A number of Middle Eastern countries, particularly those in the Gulf Cooperation Council, have reduced infrastructure spending in the wake of the oil price drop and also slowed down activity in the petroleum and oil-related service industries that rely to a large extent on Filipino labour.
“The Middle East has been the main contributor to growth of overseas worker remittances since 2013, helping to offset slowing growth of remittances from the US,” rating agency Fitch said in a note, adding that “this could, however, change if low oil prices were to persist, slowing investments and weakening demand for foreign workers.”
But low oil prices are not the only problem. Dropping remittance value also has to do with excessive currency weaknesses in key non-Middle East countries were many OFWs work, such as Singapore, Malaysia and Indonesia, and – in turn – the relative strength of the Philippine peso.
The Philippine branch of Barclays bank said in a note that it expects the entire third quarter to show negative growth in terms of cash remitted, although it stated that the slump was “only likely to be temporary. With the recent rebound in regional currencies, we expect remittance flows to improve in the fourth quarter.”
Philippine central bank governor Diwa Guinigundo takes the same line.
“In the last quarter of the year, we expect renewed heavy inflows because of the holidays,” Guinigundo said, noting that “OFWs are expected to send more money to their families back home in preparation for the Christmas holidays.”
Remittances of overseas Filipinos made up for a total of around $24.8bn in 2014, the third largest amount of money sent home by overseas workers globally behind India and China. It is equal to about 10% of the Philippines’ GDP and helps keeping the current account balance positive despite the country’s chronic trade deficit. The bulk of cash remittances come from the US, Saudi Arabia, UAE, Qatar, Kuwait, UK, Singapore, Japan, Hong Kong and Canada.
