Understanding the critical importance of remittances to Philippine economy

It cannot be overstated how important overseas Filipino workers (OFWs) are to the country. Not only has the Philippines been recognized as one of the leading providers of skilled talent abroad; the remittances that these OFWs contribute to the country account for a significant chunk of the national economy.

In fact, amid rising prices globally, cash remittances reached a record-high in 2022. According to data made public by the Bangko Sentral ng Pilipinas (BSP), the amount of money sent by OFWs through banks increased by 3.6% to $32.54 billion last year. This pushed past the previous record set in 2021 of $31.42 billion.

This 3.6% annual remittance growth was even below that of the BSP’s 4% forecast, and slower than the 5.1% growth in 2021.

Overall, cash remittances rose by 5.8% to a record $3.16 billion in December compared to $2.99 billion in the same month last year. Since the recorded 7% increase in June 2021, the growth in remittances for December was the fastest it had been in recent history.

The BSP also underscored that the increase in revenues from land- and sea-based workers was the cause of the increase in cash remittances in December 2022.

Land-based OFWs sent $2.514 billion in December, a 5.8% increase over the same month in 2017. Whereas from a year ago, remittances from sea-based workers increased by 5.6% to $644.91 million.

The effect this had on the economy was immediately palpable. In the fourth quarter, the Philippine economy expanded by 7.2% as household consumption increased as a result of “revenge spending” by Filipinos over the holidays. The economy grew 7.6% overall in 2022, the fastest rate since 1976.

Meanwhile, inflation increased to a 14-year high of 8.1% in December, which would result in full-year inflation of 5.8% in 2022 due to skyrocketing food prices.

On Dec. 29, 2022, the peso finished at P55.755, down 8.5% or P4.755 from its P51-per-dollar closing on Dec. 31, 2021.

According to the BSP, growth in inflows from economies such as the United States (US), Saudi Arabia, Singapore, Qatar, and United Kingdom (UK) contributed largely to the increase in remittances in 2022.

In 2022, the United States (41.2%) accounted for the majority of remittances, with Singapore (7%), Saudi Arabia (6%), Japan (5.1%), the United Kingdom (4.7%), the United Arab Emirates (4.2%), Canada (3.6%), Qatar (2.8%), Taiwan (2.7%), and the Republic of Korea (2.5%) following.

More than three-fourths (79.8%) of all cash remittances during the year are distributed among these nations.

Meanwhile, personal remittances that include inflows in kind grew 5.7% to $3.49 billion in December from $3.30 billion in the year prior. As a result, the total for the entire year increased by 3.6% to a record $36.14 billion.

“The robust inward remittances reflected the increasing demand for foreign workers amid the reopening of economies. The full-year 2022 level accounted for 8.9% and 8.4% of the country’s gross domestic product (GDP) and gross national income (GNI), respectively,” the BSP said.

The BSP anticipates a 4% increase in remittances this year, but due to challenging economic circumstances, the projected global economic slowdown may cause remittances from OFWs to fall short of the central bank’s 4% growth target this year.

According to a research note published by Union Bank of the Philippines, Inc. (UnionBank), cash remittances sent home by OFWs may only increase by 2.8% this year.

“We maintain our bearish yearend estimate of remittances for a 2022 growth of 2.7% while upholding our sober growth forecast of 2.8% this year. In our updated trajectory, we expect solid gains in the (first half of 2023) particularly during our summer months of April to May,” UnionBank said.

“Growth turns lackluster in (the third quarter of 2023) perhaps consistent with the timing of offshore recession risk, before resumption of an upbeat pace in November to December during the peak remittance season,” the bank added.

In the latest World Bank Migration and Development Brief, the organization said remittance inflows to the Philippines could face headwinds due to the global economic slowdown affecting OFWs’ ability to send money back home.

“(Remittance growth) reflected benefits of bilateral arrangements that the Filipino government forged recently with destination governments (including Saudi Arabia) to improve the treatment of Filipino workers,” the World Bank said.

The Philippines lifted the ban on the deployment of OFWs to Saudi Arabia, which was imposed in 2021 due to alleged maltreatment of Filipino workers by Saudi employers, in November 2022.

The demand for competent Filipino employees in the health and hospitality industries, the World Bank noted, also pushed remittances higher.

“With nearly 40%-60% of their emigrants employed in the United States and the United Kingdom, the Philippines and Vietnam benefited from the wage hikes and labor shortages in these countries, even as the pandemic-related stimulus subsidies were phased out and record-high inflation eroded their remitting ability,” it said.

“Migrants help to ease tight labor markets in host countries while supporting their families through remittances. Inclusive social protection policies have helped workers weather the income and employment uncertainties created by the COVID-19 (coronavirus disease 2019) pandemic. Such policies have global impacts through remittances and must be continued,” Michal Rutkowski, World Bank global director for Social Protection and Jobs, said in a statement. — Bjorn Biel M. Beltran