MANILA, Philippines—Most developing countries, including the Philippines, may expect their remittances to grow well through 2013 as the world economy continues to recover while global demand for labor surges.
But the double-digit pace of remittance growth seen in 2009, when the crisis was said to have peaked, would not likely be duplicated anytime soon, according to the World Bank.
In a report, the World Bank said developing countries would enjoy rising remittances over the medium term despite the political unrest in North Africa and the Middle East, which account for a significant number of migrant workers.
Still fragile
“In line with a recovering but still fragile global economy, remittance flows to developing countries are expected to increase in 2011-13, but at lower and more sustainable rates compared to the period prior to the global financial crisis,” the World Bank said in a report authored by Sanket Mohapatra, Dilip Ratha and Ani Silwal.
Data from the World Bank showed that remittances to developing countries reached an estimated $325 billion last year—up by 5.6 percent from the previous year’s $308 billion.
The bank projects remittances to grow by 7.3 percent this year, 7.4 percent next year, and 7.9 percent in 2013.
The Philippines remained the fourth-biggest recipient of remittances last year with $21.4 billion. The amount marked an 8.1-percent expansion year on year.
Purchasing power
The Philippines followed India, China and Mexico, where remittances amounted to $53.1 billion, 51.3 billion and $22 billion, respectively.
The fifth-biggest recipient was Bangladesh with $10.8 billion.
But the bank noted that the positive impact of remittance growth on the purchasing power of the recipients had been tempered by the appreciation of currencies of developing countries.
In the case of the Philippines, while remittances last year grew by 8.1 percent in dollar terms, the peso equivalent of the money rose by only 2.3 percent due to the peso’s appreciation against the greenback.
“This appreciation, combined with higher rates of inflation in developing countries, implies that migrants have to send more in dollar terms to simply maintain the purchasing power of recipients,” the bank said.
The peso closed at 43.84 against the US dollar in the last trading day of 2010, rising by 5.4 percent from the close of 46.36 in the last trading day of 2009.
Appreciation
If adjusted for inflation, some currencies of developing countries, pinned against the dollar, were reported to have contracted.
In the case of the Philippines, the peso equivalent of the remittances in 2010 marked a 1.4-percent drop if inflation had been factored out.
This is the reason why the Bangko Sentral ng Pilipinas is being urged by some sectors to prevent the peso from appreciating too sharply.
Some economists believe that the peso equivalent of remittances has to remain strong as this fuels household consumption—a key driver of the economy.
But the central bank said it would stick to a foreign exchange policy that allows a market-determined exchange rate.
The monetary authorities would intervene from time to time to prevent the peso’s sharp fluctuations.
The BSP said that, in favoring either a strong or weak peso, there would be sectors that would be adversely affected.