Despite oil price softening, remittances to stay stable

Migrant workers’ remittances are expected to stay stable even as oil producing countries, where a significant portion of overseas Filipino workers (OFW) are based, struggle with the effects of falling fuel costs.

Local authorities are confident remittance flows will live up to their “crisis-proof” reputation and continue to support domestic spending even as the global economy faces headwinds.

“I believe that oil-producing countries have sufficient buffers,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said when asked about the possible effects of low fuel prices on OFWs.

Data from the central bank showed a significant portion of remittances that entered the country from January to September this year came from the Gulf states. Of the total of nearly $18 billion in remittances at the end of September, $3.8 billion came from Middle Eastern countries.

Cash transfers from this region were also faster than any other part of the world, growing 28.6 percent at the end of September over the same nine months in 2013. Total remittances during that period were up just 6.1 percent, according to the BSP.

Tetangco said lower oil prices might have a negative effect on oil-producing countries in the near term, but the strength of those economies would remain intact.

“There should not be any immediate significant change in their structural economies that would warrant a decline in remittances and in demand for OFWs,” he told the Inquirer.

Last year, remittances accounted for about 8 percent of gross domestic product (GDP). This year, remittances are expected to grow by at least 5.5 percent to a record high of over $24 billion.

The more pressing concern, the central bank chief said, would be a rebound in fuel prices, which may affect domestic inflation.

“As we know, often, what comes down very quickly could also come back up just as suddenly,” Tetangco said.

Low oil prices have kept domestic inflation more stable in recent months, giving the central bank space to adjust its own interest rates at a more measured pace. After hiking benchmark borrowing and lending rates from record lows earlier this year, the BSP has stayed its hand to avoid choking the country’s already-slowing economy.