Remittance growth seen slowing as virus spreads

CASH REMITTANCES from overseas Filipino workers (OFWs) could drop by as much as $6 billion in 2020 as up to 400,000 Filipinos could lose their jobs amid a global recession due to the coronavirus disease 2019 (COVID-19), according to a paper published by the Ateneo de Manila University Department of Economics and Ateneo Center for Economic Research and Development (ACERD).

Authored by ACERD Director Alvin P. Ang and Institute for Migration and Development Issues Executive Director Jeremaiah M. Opiniano, the paper said a drop in remittances will also take a toll on consumption, which could drop 20 to 40%.

“Cash remittances will visibly decline — from $30 billion in 2019 to about $24 to 27 billion this year (that being the steepest year-on-year decline of remittances in Philippine migration history),” the report said.

The projection is based on a worst-case scenario where 20% of all OFWs are affected by the pandemic.

“That is roughly 10 to 20% or $3 to $6 billion less, year on year. This is assuming that significant parts of the global economy continue to be in some sort of a lockdown,” it said.

Moreover, the paper said 300,000 to 400,000 OFWs may be hit by layoffs, pay cuts and even repatriation.

In 2019, cash remittances grew 4.1% to hit a record $30.133 billion. January remittances also climbed 6.6% to $2.648 billion.

The central bank already downgraded its remittance growth forecast to 2% this year from 3% as it priced in the impact of the virus on the global economy.

Cash remittances fuel household consumption that makes up 70% of the country’s gross domestic product.

According to the Ateneo paper, a more severe impact on remittances is seen amid falling oil prices.

“In the current scenario, all of the oil producers in the Middle East are at risk with falling oil prices. Note that nearly half of our OFWs are based there,” the authors said.

“If the trend of falling prices continues, the Middle East might be forced to stop oil production and possibly lay off many workers including Filipinos,” they added.

This is compared to the impact of the global financial crisis which was less grim than expected as OFWs remained in their countries of employment and adjusted, which included deskilling.

The authors also said the drop in remittances will likely cause a 20-40% drop in consumption.

Meanwhile, ANZ Research sees cash remittances contracting this year.

In a report on Wednesday, ANZ Research Chief Economist Sanjay Mathur said those working in the services sectors have been particularly affected by the pandemic.

“Of particular note is that the retail services sector, where close to one-fifth of all OFWs are deployed, has been closed down in several economies,” Mr. Mathur said.

The likely increase in unemployment rates in several economies could also impede hiring of new OFWs as well as wage growth, he said.

“As an example, our house view is that the US unemployment rate could rise to just under 20% in Q2 2020,” he said. The US accounted for more than a third or 37.6% of total remittance inflows to the Philippines in 2019.

Mr. Mathur also flagged the risk of a drop in remittances if the peso weakens.

“In general, a depreciation of the peso vis-à-vis the remittance currency augments purchasing power in the short term. This is particularly in the case of lower income groups whose spending is concentrated in domestically produced goods.”

Mr. Mathur said they expect slower remittances to hit basic spending for Filipinos, including food, education, medicare, as well as home and auto purchases. — Luz Wendy T. Noble