The slowing growth of remittances from Filipinos living and working overseas is seen to further widen the current account deficit and put pressure on the peso, London-based Capital Economics said.
Last year, cash remittances rose by only 3.1 percent, the slowest since 2001 and Capital Economics expected the annual growth in the near term remaining at about 3 percent—half the average rate in the last 10 years.
In a March 14 report titled “Philippines: Is the slowdown in remittances a concern,” Capital Economics senior Asia economist Gareth Leather and Asia economist Alex Holmes said the easing remittances growth reflected the “improved performance of the Philippine economy, which made it easier for people to find employment at home and reduced the need for them to go overseas in search of work.”
The Philippines’ gross domestic product (GDP) has been expanding by more than 6 percent yearly since 2012, among the fastest in the region.
The domestic unemployment rate also dropped to 10-year lows as the growing economy created more stable jobs in recent years.
Capital Economics also attributed the slowdown in remittances to fewer job opportunities in the Middle East amid a downturn in what had been a top destination for overseas Filipino workers (OFWs).
“The [Middle East] is the source of 30 percent of remittances to the Philippines, and there has been a marked slowdown in remittances from the region over the past few years,” it said.
With remittances accounting for a tenth of GDP, Capital Economics said weak inflows might “act as a drag on consumption and investment.”
But despite easing dollar remittances, “with fiscal and monetary policy set to be loosened this year, economic growth should remain fairly strong,” it said.
New Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno earlier signaled interest rate cuts as headline inflation returned within the government’s 2-4 percent target range. The BSP hiked key rates by 175 basis points last year amid 10-year high inflation.
The government nonetheless cut its GDP growth target for this year to 6-7 percent from 7-8 percent previously as the impasse on the 2019 budget dragged on.
Capital Economics warned about the impact of decelerating remittance growth on the country’s balance of payments position.
“The current account has gone from a surplus to a deficit over the past couple of years and is likely to widen further over the next couple of years. While the main driver of the shift has been a surge in imports of capital goods and raw materials as the government’s infrastructure drive has gathered pace, weaker remittances (which are included as part of the current account) have also been a factor,” it said, referring to the administration’s “Build, Build, Build” program. —BEN DE VERA