The diverse destinations and jobs of Filipino migrant workers as well as the robust business process outsourcing (BPO) sector would mitigate the impact of cheap oil on remittances to the Philippines, Moody’s Investors Service said yesterday.
In a report titled “Falling Remittances from the Gulf Dampen Benefits of Lower Oil Prices,” the debt watcher noted that since a substantial portion of remittances to the Asia-Pacific region comes from oil-producing countries belonging to the Gulf Cooperation Council (GCC), the slump in oil prices “has prompted declines in remittances to several Asian countries.”
“Previous oil price crashes had limited and short-lived effects on remittances to Asian countries. But this time, a more pronounced and prolonged oil price decline, coupled with fiscal tightening in many oil-exporting countries, is likely to hurt migrant worker earnings and remittances,” Moody’s said, citing that Asia-Pacific excluding Japan cornered more than two-fifths of global remittances.
But in the case of the Philippines as well as India and Vietnam, “diversified locations and vocations of overseas migrants could help to reduce the fall in worker remittances.”
The report noted that the Philippines sources remittances “almost equally” from the Gulf region and the United States. “Between 2010-2013, growth in the number of Filipinos migrating to the US has been far outpaced by those to the Middle East. But the proportion of remittance inflows from the US and GCC are nearly equal, at 34 percent and 31.7 percent, respectively,” it pointed out.
It would also help that for the Philippines and India, “the relatively diverse occupations of their workers should provide a buffer against an oil-related slowdown in remittances,” Moody’s said.
“Overseas Filipinos are engaged in a wide range of jobs, including domestic work, hospitality, medical services and engineering. Workers in such professions are much less likely to see an impact from the slowdown than those in the construction or oil and gas industries,” it said.
Remittances accounted for a tenth of the Philippines’ gross domestic product, but “domestic drivers of growth can help to pick up the slack that a fall in remittances could bring,” it said.
“In the Philippines, the BPO industry is a strong contender with remittances as a revenue generator,” it noted.
“Another mitigating factor relates to the purchasing power of remittance inflows. GCC currencies are pegged to the US dollar, which has strengthened. So in countries where local currencies have depreciated significantly against the dollar, including Sri Lanka, the Philippines and Vietnam, each dollar sent buys more local currency. This translates into greater purchasing power of the dollar, which will help to offset the smaller size of remittances in dollar terms,” it added.
Cash sent home by Filipinos overseas grew 3.4 percent year-on-year to $2.02 billion last January—the first time that remittances breached the $2-billion mark at the start of the year, the latest Bangko Sentral ng Pilipinas data showed. Last year, cash remittances totaled a record $25.767 billion, up 4.6 percent year-on-year. This year, cash remittances are projected to grow 4 percent.