THE forecast decline in 2020 Philippine remittances has been revised to 15% from 10% as overseas workers lose their jobs or see their wages reduced, the Institute of International Finance (IIF) said.
In its latest Macro Notes edition issued Wednesday, the IIF said inflows have dropped significantly in remittance-dependent countries like the Philippines, Bangladesh, Sri Lanka and Vietnam, but detected traces of a “moderate pickup” in May.
“The outlook for the full year remains bleak — in the Philippines, for example, a country with remittances reaching 10% of GDP, we project a 15% decline,” it said in the report, which carries the title “EM Asia: COVID-Induced External Adjustment.”
“As a result of lower remittances inflows, domestic demand, and consequentially imports, will remain under significant pressure for the rest of the year,” it added.
The study “analyzed the external adjustments in emerging markets” in Asia given the impact of the coronavirus pandemic, noting that the slowing global economy has dampened exports with weak domestic demand expected to drag down imports.
Meanwhile, other sources of foreign exchange inflows “have come under significant pressure as well” in the first six months, including income from foreign tourism and remittances.
Cash remittances dropped 16.2% from a year earlier in April to $2.046 billion, the sharpest decline since a 33.5% slump in January 2001.
The World Bank expects global remittances to decline 20% this year, while Moody’s Investors Service sees Philippine remittance inflows falling 5-10%.
“The economic disruption brought about by the pandemic is unprecedented in both its severity and scope, and we are observing a global synchronized recession amidst widespread government-imposed restrictions. In this context, it is not surprising that international trade — including in services has dropped sharply,” the IIF said.
It said the more stringent lockdowns in the Philippines and India caused exports to decline sharply, while the prolonged restrictive measures to curb the spread of the virus weakened domestic demand.
It said these “dramatic changes in international trade” will result in “significant current account adjustments” in the region.
The Philippine current account deficit hit $464 million in 2019 or 0.1% of gross domestic product (GDP), narrower than the $8.773-billion gap seen in 2018.
“The dramatic shift in cross-border flows could accelerate structural changes in the region, such as the shifting and upgrading of industrial capacities and shortening of supply chains. Countries in EM Asia are also attempting to strengthen domestic tourism and reduce their overall dependence on external demand,” it added.
The Philippines projects a 2-3.4% GDP contraction this year. — Beatrice M. Laforga