The spending power of overseas Filipino workers’ (OFW) families improved significantly this year as a result of the weak peso, providing much-needed support for the domestic economy that has performed short of expectations so far.
According to the central bank, families relying on cash transfers from OFWs have also started to save, and that these savings could be channeled by banks to more productive purposes.
“Definitely, this should translate to higher consumption expenditure,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said in a recent interview.
Weakness in the local currency usually benefits OFWs’ families. The peso value of every dollar that is sent to the country increases as the local currency’s value declines. This effect also benefits local exporters.
As of last Monday’s close, the peso has weakened by half a peso since the start of the year. This comes as a result of the dollar’s sustained rise following the recovery of the American economy.
On top of the peso’s fall, remittances to the Philippines also continue to increase despite weakness in certain advanced markets like Europe and Japan, which host large Filipino communities.
Latest data from the BSP showed that remittances from OFWs rose by nearly 8 percent in September to a near-record high of $2.1 billion.
For the nine months ending September, remittances were up 6.1 percent.
The BSP last month revised its projection for remittances, with growth now seen reaching 5.5 percent, slightly higher than the previous projection of 5 percent.
Remittances remain one of the pillars the economy leans on for strength. These cash transfers are the largest source of foreign exchange for the country, which helps the economy weather crises like the 2008 Global Recession and this year’s so-called “Taper Tantrum.”
These inflows also support domestic consumption, which accounts for about two-thirds of gross domestic product.
Apart from supporting consumer spending, remittances also help support the housing market, Guinigundo said.
Data from the Housing and Urban Development Coordinating Council (HUDCC) last month showed that about 3.6 million families across the country still needed new homes. By 2016, this demand is expected to balloon to about 5.6 million homes.