By Beatrice M. Laforga, Reporter

CASH sent home by overseas Filipino workers (OFWs) could drop by as much as 10% this year, as massive layoffs and wage cuts are seen around the world, the Institute of International Finance (IIF) said.

Yuanliu Hu, an emerging markets Asia economist at the IIF, told BusinessWorld remittances from OFWs are projected to decline by 7% to 10% this year.

“We expect remittances to fall by 7% to 10% in 2020, and the current account deficit will also expand to 1% of GDP (gross domestic product),” Mr. Hu said via e-mail.

IIF earlier projected a 20-30% drop in remittances for developing countries, worse than the 5% decline recorded during the global financial crisis between 2007 and 2009.

“From the high frequency monthly overseas workers’ remittances data, we did not see a significant reduction until February, but we expect the number will decline sharply in March as a lot of countries started lockdown since then,” Mr. Hu said.

He attributed the decline mainly to the massive layoffs and salary reductions implemented in other countries affected by the pandemic and subsequent lockdown measures.

“The Philippines relies heavily on OFW remittances, it accounts for around 8% of GDP in 2019. But with the COVID-19 effect, a lot of overseas Filipino cannot provide services or suffering layoffs and pay cuts,” he said.

Mr. Hu also pointed to the slump in oil prices that has hurt countries in the Middle East — the biggest source of remittances from Filipino migrant workers.

OFW remittances rose 2.5% from a year ago to $2.358 in February, but at a slower pace compared to the 6.6% expansion seen in January.

“Looking forward, the speed of reopening for the world economy is very important for the remittance inflow, if there is a second wave of outbreaks, the situation will definitely be worse,” Mr. Hu said.

Philippine Statistics Authority (PSA) data showed there were 2.202 million OFWs in 2019, slightly less than the 2.299 million in 2018. Saudi Arabia remains the top destination of OFWs accounting for 22.4% of the total migrant workers, followed by the United Arab Emirates (13.2%), Hong Kong (7.5%), and Taiwan (6.7%).

“The recovery of international shipping and fishing business is also crucial for OFW remittance, as around 75% of remittance comes from sea-based (workers),” Mr. Hu added.

The central bank still expects OFW remittances to post a two percent growth this year.

Meanwhile, the World Bank in April projected remittance flows in lower- and middle-income countries could drop by around 13% on average this year.

Current account made up 0.1% of GDP in 2019 as the current account deficit hit $464 million, narrower than the $8.773-billion gap recorded in 2018.

The current account displays the country’s overall economic interaction with the rest of the world covering trade in goods and services; remittances from OFWs; profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from abroad.

The government estimated the economy to shrink by 2-3.4% this year.