By Jeremaiah M. Opiniano
Posted date: September 01, 2008
MANILA–A US-generated financial crisis is testing overseas Filipino workers’ ability to send cash home, an economist said, using government data on remittances.
“If OFWs persist in sending more money, it will not be physically sustainable for them,” Alvin Ang told the OFW Journalism Consortium before monetary authorities reported on August 15 that OFWs sent home a record $1.5 billion in June.
The Bangko Sentral ng Pilipinas linked the 30-percent year-on-year remittance growth rate to an increase in the number of Filipinos who left for work abroad from January to June this year. Government recorded over 600,000 Filipino workers who left the country using official channels in the first six months of the year.
While acknowledging the increasing rate of remittance from these Filipinos, Ang warns that remittance flows especially from the United States and the Kingdom of Saudi Arabia are entering a “plateau.” Using year-on-year totals of cash remittances formally sent over a six-month period ending May, Ang defined that plateau as a growth rate of remittances at three percent and below.
As an example, he cited remittances from OFWs in the US growing less than one percent (0.66) to $2.462 billion in the first six months ending May as against the same six-month period, $2.446 billion, in 2007.
He also noted the 1.12 percent growth rate of OFW remittances from Saudi Arabia in the five-month period ending May this year, totaling $528.013 million, compared to $522.156 million in the first five months of 2007.
These remittances from major host countries still grew, Ang said, but they were “not significant increases.”
Even the total monthly remittances are either touching plateau levels or experiencing negative growth rates, Ang said.
The country received $1.396 billion in December 2007 but the January remittance declined by 9.52 percent to $1.264 billion and $1.258 billion in February 2008.
Declining rates may be due to several factors, among them US inflation and higher oil and commodities prices, said Ang, but their effects on remittances are not immediate, “Give it one to one-and-a-half years before we really feel the full effect.”
He also noted that OFW remittances from countries other than the US and Saudi Arabia have been contributing more to growth rates and helping arrest the decline in cash flow.
OFWs in Singapore, for example, sent home $0.175 billion during the first five months, or an 81.98-percent growth from $95.985 million in the same period last year.
Filipinos in Canada sent $0.46 billion during the first six months, achieving a year-on-year 70.65-percent growth rate.
Filipinos in Europe also saw their year-on-year five-month remittance volumes grow – like Italy at 22.11 percent, Germany at 27.22 percent, and the United Kingdom at 19.01 percent.
Ang’s prognosis on the Philippines’s plateau-level remittance growth rates recalls a basic economic concept: the law of diminishing returns. There will come a time when remittances from OFWs, whether it’s the overall total or the per-continent or per-country totals, “will go down somewhere,” he said.
Given the weakening dollar, World Bank economists Dilip Ratha and Sanket Mohapatra have also observed in Remittances Dispatch that rising inflation rate and oil and commodities prices have “further (eroded) the purchasing power of remittances” to Mexico, India and the Philippines.
In particular, they noted that while Philippine remittances increased by nearly 50 percent between 2004 and 2007, “[a] large part of this increase has been simply to preserve the purchasing power of recipients since the Philippine peso appreciated by 33 percent against the US dollar.”
OFW remittance to the Philippines hit roughly $14.5 billion last year. It was at $8.5 billion in 2004.
But after accounting for the peso’s appreciation and domestic inflation, Philippine remittances increased by only three percent in the three years beginning 2004, write Ratha and Mohaptra.
In comparison, India’s and Mexico’s remittance growth rates after accounting for inflation were 13 and 19 percent, respectively.
While the effects of the world price adjustments are yet to sink in, Ang expects Filipinos in many countries to be sending home lower amounts of money.
OFW Journalism Consortium