Robust remittance inflow protects PH, Citi says

MANILA, Philippines—Remittances from overseas Filipino workers (OFW) will remain among the country’s main sources of strength, protecting the local economy from volatile market conditions caused by external shocks.

In a report Tuesday, global financial giant Citi said the money sent home by Filipinos overseas, which make up a large portion of the country’s income from abroad, are enough to offset any adverse effects resulting from a possible pullout of foreign investors.

“Current account implication of remittances staying resilient would fend off potential shifts in global risk sentiment,” said a report by Citi analyst Jun Trinidad.

The shift in sentiment by foreign investors in the coming weeks could come as a result of the recent release of China’s second-quarter gross domestic product (GDP) data, which showed a growth slowdown for Asia’s largest economy.

He said lower-than-expected US retail sales in June might also fuel aversion among global fund managers from emerging economies like the Philippines, which investors still see as a risky market.

Citi noted that foreign investors bought $1.8 billion-worth of local stocks, bonds, and government securities in the first quarter, significantly higher than year-ago levels. Trinidad said this could be the basis for net outflows in portfolio investments in the second quarter.

“(But) remittances staying resilient in second quarter could overshadow this portfolio exit risk,” the report read.

Data released by the central bank this week showed cash remittances from OFWs rose 5.3 percent in May to $1.87 billion, in line with the government’s official target.

“Having a resilient component of the current account position that keeps the surplus intact distinguishes the Philippines from the (other) emerging markets, which are suspected of harboring current account weakness at this stage of lackluster global trading and at a time when external funding support won’t be as accessible,” it added.

Citi also noted the fact that the bulk of remittances came from workers with contracts good for at least a year, indicating that inflows would likely remain stable in the coming months.