BSP cuts outlook for remittance growth to 2%

GROWTH in cash remittances from Overseas Filipino Workers (OFWs) is likely to slow to 2% in 2020 as the coronavirus disease 2019 (COVID-19) outbreak affects countries where OFWs are deployed, though remittances have tended to remain relatively steady even in past crises, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“Our forecast before this crisis is that OFW remittances will increase by 3% (in 2020). Now that has been downgraded to 2%,” Mr. Diokno said on ABS-CBN News Channel Sunday.

In 2019, cash remittances rose 4.1% to a record $30.133 billion after coming in at $28.943 billion in 2018, according to the central bank data. This growth rate exceeded the 3% projection set by the BSP.

Mr. Diokno said based on behavior observed in previous global crises, workers will continue to send money home, and speculated that they might be tapping their overseas savings.

“Of course this crisis is like no other crisis in the past but if you go by our experience, crisis or no crisis, overseas Filipino remittances has been steady,” Mr. Diokno said.

“I think Overseas Filipino Workers (OFWs) recognize the needs of their families here, (and) continue to send remittances. Maybe they have extra savings abroad,” he added.

Money sent home by OFWs drives the consumer economy by boosting household spending, which accounts for about 70% of gross domestic product (GDP).

The reduced outlook for cash remittance growth will have a major impact on economic growth, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“Every 1 percentage point decline in OFW remittances growth is equivalent to about $300 million or roughly about 0.1% of GDP, which could be (a substantial hit to) economic growth,” he said in an e-mail.

The National Economic and Development Authority (NEDA) has said economic growth could come in between -0.6% and 4.3% this year under a range of scenarios after the 5.9% gain seen in 2019. NEDA’s estimate is a major downgrade from the 6.5% to 7.5% target set by the government when the outbreak was still not factored in.

Citing data from McKinsey and Co., Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said that the impact on remittance inflows of COVID-19 could be “bigger than what is expected by the BSP.”

The McKinsey analysis, which includes data from the BSP and the World Health Organization, indicates that cash remittances from the most-affected economies during the SARS (Severe Acute Respiratory Syndrome) outbreak, including Hong Kong, Singapore, Taiwan, and Canada, saw a combined 18% drop between 2002 and 2003.

“For COVID-19, aside from Taiwan and Canada, additional countries such as the US and Italy may have decreased inflows,” Mr. Asuncion said in an e-mail.

The major decline in oil prices could also affect cash remittances, he said.

“Aside from COVID-19 with much fluidity and uncertainties, the collapse of global oil prices may also negatively impact remittance inflows particularly in Middle East countries, where a lot of Filipino foreign workers are deployed,” he said.

Mr. Asuncion sees OFW remittance growth titled more to the downside this year, with a recovery in the near term to depend on developments in containing the pandemic.

The biggest remittance source in 2019 was the US, which accounted for 37.6% of total inflows. Inflows from the US, Saudi Arabia, Singapore, Japan, United Arab Emirates, the United Kingdom, Canada, Hong Kong, Germany, and Kuwait accounted for 78.4% of cash remittances for the year, according to the BSP.

Globally, COVID-19 cases topped 1.2 million as of Monday, with the US accounting for more than 330,000 cases.

Mr. Ricafort said that OFWs working for certain sectors will likely be more affected by the impact of the epidemic and the lockdowns it has caused in many economies.

“OFWs employed in tourism, travel, hotel/accommodation, leisure, restaurants, retail, and other related industries that were hardly hit by lockdown and even COVID-19 infections such as those in the cruise ship industries could experience some decline in remittances in the coming months, until lockdowns are lifted and COVID-19 cases are better contained and controlled,” Mr. Ricafort said.

One possible upside in remittance growth is the deployment of more OFWs working in essential sectors like health care, he said.

“Some OFWs worldwide are also part of essential services (last-to-go), such as health care/medical professionals and support staff,” Mr. Ricafort said. — Luz Wendy T. Noble