Philippines: Remittances seen to shrink first time in nearly 2 decades, says BSP

• Apr 25, 2020

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) now expects remittances to shrink for the first time in almost two decades as more overseas Filipino workers (OFWs) return to the Philippines amid the global virus outbreak.

BSP assistant governor Iluminada Sicat told reporters in a virtual press briefing that the central bank initially expects cash remittances to contract by 0.2 to 0.8 percentage point this year.

“Considering that there are already OFWs being repatriated back particularly from the sea-based sector, we see that there will be some contraction in remittances by about 0.2 to 0.8 percentage point,” Sicat said.

Data showed OFW remittances last shrunk to $6.03 billion in 2001 from $6.05 billion in 2000 primarily due to the Asian financial crisis and the political controversies during the Estrada administration.

The amount of money sent home by OFWs to their loved ones in the Philippines has been accelerating since 2002, with cash remittances coursed through banks rising by 4.1 percent to an all-time high of $30.13 billion last year from $28.94 billion in 2018 and personal remittances increasing by 3.9 percent to $33.47 billion from $32.21 billion.

Sicat said the BSP was originally projecting remittances to grow by three percent for 2020.

“We believe that remittances could also be affected by the emerging scenario resolution to the pandemic problem to the extent that the pandemic problem continues, then there might be some more contraction in OFW remittances,” Sicat added.

BSP Governor Benjamin Diokno was earlier hopeful OFW remittances would grow by two percent this year.

Nicholas Mapa, senior economist at Dutch financial giant ING Bank Manila, said the coronavirus disease 2019 (COVID-19) pandemic could knock out consistent remittance flows crucial to consumption.

“Remittances from abroad will likely experience a 2.5 percent contraction due to COVID-19 which could affect both growth prospects and the external position of the Philippines,” Mapa said.

OFW remittances have routinely sent home an average of $2.3 billion a month over the past five years, with 2019 remittance inflows totaling a record high of $30.1 billion or roughly 8.5 percent of gross domestic product (GDP).

Mapa pointed out the annual growth of OFW remittances over the past few years has averaged 4.1 percent, with the steady stream of foreign currency also helping support the Philippine external position and bolstering the peso.

According to the ING, the natural hedge of Filipinos deployed across the globe means that weaker remittances from one region of the world could be compensated for by funds sent from less affected areas.

“COVID-19 however challenges this view with the virus spreading to almost every corner of the globe. Meanwhile, with lockdowns implemented in several countries, Filipinos deployed overseas may not have enough income to send back home to their families in the first place,” Mapa said.

More than 16,000 Filipino workers have returned from host countries and sea faring vessels as COVID-19 destroyed jobs across the globe.

Mapa said impaired remittance flows has forced ING to revise its GDP forecast to a contraction of 2.2 percent this year as growth momentum is severely impaired by the Luzon-wide enhanced community quarantine while OFW remittances are expected to contract.

Mapa said the loss of remittance support coupled with a resumption of import demand induced by government’s infrastructure plans would push the peso back up to 52.67 to $1 by year-end.

Source: https://www.philstar.com/business/2020/04/25/2009573/remittances-seen-shrink-first-time-nearly-2-decades-says-bsp