Remittances from overseas Filipinos may “take another hit” as Saudi Arabia starts to enforce its policy limiting the intake of foreign workers, according to DBS Group.
In a new research note, The Singapore-based group noted that inflows from the Middle Eastern kingdom amounted to $1.5 billion or 8.3 percent of total remittances in 2010.
“A drop in [the number of] overseas Filipino workers (OFWs) deployed would impact negatively on Philippine private consumption growth,” DBS said.
The bank is referring to the so-called “Saudization” labor plan, which requires Saudi-based firms to ensure that at least a tenth of their work force is made up of Saudis.
The policy has been promulgated since 2006, but the cap on foreign workers has never been strictly enforced.
“The Saudi government recently announced that it will not renew the work permits of foreign workers who have spent six years or more within the country, clearly signaling its change of stance,” DBS said.
DBS cites estimates which suggest that over a quarter of the 1.2 million OFWs deployed in Saudi Arabia may be affected.
“Against a backdrop of slow growth in the United States and the Eurozone, it remains to be seen if the Philippine government will be able to diversify and redeploy the OFWs,” it added.
In June, DBS said the outlook on the Philippines’ current account was “cloudier” amid the sluggish recovery of advanced economies, particularly the US, and that the inflow of remittances will ease in the next few months.
Current account refers to the balance of the inflow and outflow of goods, services, and other funds such as income, donations and debt payments.
Current account is one of two main components of a country’s balance of payment, which is a record of all monetary transactions between itself and the rest of the world.
The other main component is capital account, which shows the inflow and outflow of investments.
“Indeed, remittance growth will slow in the coming months amid the slew of poor data from the US and the ongoing European sovereign debt crisis,” it added, referring to two regions that together account for some 59 percent of total remittance inflows to the Philippines.