Remittances plunge by 19% in May

By Luz Wendy T. Noble, Reporter

REMITTANCES plunged by 19% in May as overseas Filipino workers (OFWs) face salary cuts and layoffs as the coronavirus disease 2019 (COVID-19) pandemic continues to ravage economies around the world.

Cash remittances from OFWs coursed through banks slumped to $2.106 billion in May from $2.609 billion in the same month a year ago, data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed. This is the biggest decline in nearly two decades after the -33.5% recorded in January 2001.

Month on month, the May inflows were $60 million higher than the April level.

From January to May, cash remittances dropped 6.4% to $11.554 billion against the $12.349 billion logged in the same five months of 2019.

“This is the third consecutive month that personal remittances posted year-on-year contraction amid the adverse effects of the COVID-19 pandemic on global economic activity, travel, and employment, resulting in the repatriation or deferment of employment of many OFWs,” the BSP said in a statement.

Inflows from the United States accounted for 39.4% of the total, followed by Singapore, Saudi Arabia, Japan, the United Kingdom, United Arab Emirates, Canada, Hong Kong, Qatar, and Taiwan. Together, these countries accounted for 78.8% of total cash remittances.

More than 115,000 OFWs have been repatriated since February due to the pandemic as of Aug. 1. Over 68,000 of them are land-based, while about 47,000 are those working in ships and cruises, according to the Department of Foreign Affairs.

Personal remittances, which include inflows in kind, also dropped 19.2% to $2.341 billion from the $2.896 billion a year ago. It shrank by 6.4% to $12.835 billion in the January to May period from the $13.707 billion logged last year.

The contraction in remittance inflows has yet to bottom out in May and will continue to affect the local economy in the coming months with the expected drop in consumption, according to analysts.

“We should brace for further drops as data shows that 115,000 OFWs have returned home by Aug. 1. That’s around 75,000 more since end-May,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

With more OFWs being repatriated and remittance inflows continuing to drop, the pandemic’s impact on consumption and employment is worsening, said Nicholas Antonio T. Mapa, a senior economist at ING Bank N.V. Manila.

“Consumption will be hit yet again and the former star player is now almost completely hobbled by the virus with job prospects turning even more precariously close to free fall,” Mr. Mapa said in a note to reporters.

Remittances fuel consumption that makes up 70% of the local economy.

The BSP in June said remittance inflows are expected to shrink by 5% this year, a reversal from the 2% growth forecast it gave in May.

‘MOST AFFECTED IN ASIA’
Meanwhile, the Asian Development Bank (ADB) economists projected the Philippines to be the most affected in the region by the decline in global remittances this year.

In a report released on Monday, the ADB said remittances are estimated to drop 20.2% this year under a “worst-case scenario,” or when the fight against the coronavirus drags on for one year.

The ADB gave a baseline estimate of a $6.2-billion drop in remittances to Southeast Asia region, and expected global remittances to fall by $57.6 billion this year.

Under the worst-case scenario, global remittance inflows would be slashed by $108.6 billion while those in Southeast Asia would be cut by $11.7 billion .

“The two-digit decline in remittances expected this year, if realized, will record unprecedented decline in remittances to the region,” it said, noting the estimate is worse than the global financial crisis in 2007-2008, when remittances to the Asia and Pacific region dropped 2.7% to $173 billion in 2009.

The ADB made the estimates using 2018 baseline data to assess the remittance impact from 2018 to 2020 under two circumstances: the baseline scenario where countries took six months to control the outbreak and normalize economic activities since the onset. The worst-case scenario considers a year-long battle before economic activities normalize and the pandemic fallout dissipates in the last three months.

Remittance receipts in other economies in the region are seen to fall by 21.4% in Indonesia; 18.1% in Vietnam; 17.7% each in Timor-Leste and Myanmar; 16.3% in Laos; 15.8% in Thailand; 15.4% in Cambodia; 12.8% in Brunei; 10% in Singapore; and 5.2% in Malaysia.

Citing a recent study by the Japan International Cooperation Agency (JICA), ADB said remittance inflows to the Philippines is estimated to fall by 23%-32% this year “relative to levels absent the pandemic, primarily attributed to adverse macroeconomic shocks in host economies,” which could dent household spending per capita by 2.2%-3.3%.

The ADB said the COVID-19 shock to remittances will be realized via three channels: where a decline in gross domestic product (GDP) affecting wage and employment in both host and source countries; halted economic activities resulting in mass job losses; and the plunging demand and price of oil affecting employment and wages of foreign workers.

“Without continuous remittance flows, remittance-dependent households can fall into poverty or have difficulty meeting basic essential needs, as well as access education and health services. Loan repayment is another challenge,” it said.

Aside from the looming drop in remittances, the ADB said the coronavirus pandemic also poses challenges to cross-border labor mobility and migration costs while movement restrictions are still in place.

To cushion the impact, the multilateral bank said host countries can give migrant workers access to social protection, job-retention support, social assistance and public health services, amid the ongoing pandemic.

Governments can also create a program that will re-skill and upskill migrant workers to help them transition in other jobs at home.

The World Bank also forecasts a 20% drop in global remittances. — with Beatrice M. Laforga