ADB urges Philippines to cut reliance on remittances
DEVELOPING COUNTRIES like the Philippines should look into sovereign wealth funds or “diaspora bond” issues to offset possible declines in remittances when major crises disrupt the overseas labor market, the Asian Development Bank (ADB) said.
As “over-reliance on remittances” exposes economies to external shocks and volatility, Matteo Lanzafame and Irfan A. Qureshi, economists at ADB’s Economic Research and Regional Cooperation Department, urged countries to take precautions that will help them stay resilient if cash from overseas workers dries up suddenly.
They said countries could park a portion of any taxes collected on remittances into a fund that will help cushion the blow of reduced remittances as the population ages and fewer people go overseas to work.
“This is particularly relevant for countries such as the Philippines, which have typically had large shares of population migrating abroad at a young age but returning when they retire. Financial instruments akin to the so-called “diaspora bonds” appear suitable as a means to promote intergenerational sharing of the benefits from remittances,” Mr. Lanzafame and Mr. Qureshi said in a blog on Monday.
They said diaspora bonds are aimed to channel the savings of migrant workers “in the adoptive countries towards capital markets in the home economy.”
They cited Norway’s oil-based sovereign fund which serves as a buffer against fluctuating prices of commodities.
“Remittance-dependent economies can consider instruments to hedge against sudden shortfalls in remittance flows,” they added.
The Philippines is among the top recipients of remittances in Asia and the Pacific.
During the financial crisis in 2008-2009, they said remittances were not spared when the global economy slowed down, causing cash sent home to drop by 5%.
“Remittances failed to play their typical role as a stabilizing mechanism since not only recipients but also senders were affected — and it appears this will be the case for the COVID-19 pandemic as well,” they said.
The ADB projected overseas Filipino remittances to drop up to 20.2% this year assuming a one-year normalization period after the crisis.
Remittances rose 7.7% in June, after a 19% drop in May. In the first half, remittances fell 4.2%.
“Countries must therefore adopt a multi-pronged strategy to deal with shortfalls in remittance flows during critical times, such as the current crisis,” they said.
They said governments can also roll out a more urgent support to mitigate the impact on remittance-reliant families through cash handouts and low-interest loans. — Beatrice M. Laforga
