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BSP sees sustained rise in remittances

Despite geopolitical tensions, the Bangko Sentral ng Pilipinas (BSP) expects overseas Filipinos’ remittances to remain robust and sustain the projected four percent annual growth for a long time.

As the global economy gradually reopens, BSP Governor Benjamin E. Diokno is not discounting a possible five percent remittances growth for 2022 although the official forecast is four percent. Since 2010, after the Global Financial Crisis, the country’s remittances have “generally moved steadily along its five-year and ten-year long term average growth of between four to six percent.”

Remittances grew over four percent in 2021 to 5.1 percent amid the Covid-19 pandemic, it was short of the six percent growth estimates that the Bangko Sentral ng Pilipinas (BSP) had projected.

“It’s now becoming more and more difficult to grow at five to seven percent because we have already a huge base. It is easier if the base is say, $10 billion. It’s now more than $30 billion. So, a growth of four or five percent would already be substantial,” said Diokno on Friday, March 25.

At the end of 2021, cash remittances – these are fund transfers course through the banking system – increased by 5.1 percent year-on-year to a record high of $31.418 billion but was off the expected six percent growth for the year.

The cash remittances was originally projected to grow five percent in 2021 but the BSP revised the projection in September last year and raised it to six percent as they predicted higher-than-anticipated recovery after contracting 0.8 percent in 2020 due to the pandemic. For this year, the BSP expects cash emittances to grow by four percent.

“Based on the latest projections, overseas Filipino remittances are forecasted to expand by four percent by 2022 consistent with its long-term growth trend. The continuing improvements in global growth prospects and further opening and recovery of host economies along with the continued administration of vaccines and medicines to prevent the spread of Covid-19 are expected to lend support to the overseas Filipino remittances,” said Diokno.

Remittances are proven resilient and a steady US dollar source for the Philippines. Thus, even with the geopolitical tension arising from the conflict in eastern Europe, the BSP remained confident of growth.

The chief said that the Russia-Ukraine war will have a minimal impact on remittances since the remittances from Ukraine and Russia combined accounted for less than 0.1 percent of total remittances in 2021.

Based on BSP data, remittances from Ukraine in 2021 amounted to $121,000 or just 0.0004 percent of total remittances. Russia, meantime, contributed $2.3 million or 0.007 percent.

“Remittances in general has been historically quite resilient even amid crisis episodes,” said Diokno. “However, should the war escalate further to include NATO (North Atlantic Treaty Organization) member countries, this could have significant implications for the Philippines,” he added. The US and the European Union countries are NATO members and the Philippines’ two biggest trading partners. It was, in fact, Ukraine’s bid to join NATO that triggered the conflict.

Diokno said there are reasons to be optimistic with the remittances outlook. But, he also noted that some downside risks remain such as the geopolitical tensions in Europe.

While the combined remittances from Ukraine and Russia is only 0.008 percent of remittances in 2021, Diokno said there could be significant implications such as an escalation of the conflict to the greater Euro area. He said remittances from the EU, including the UK, is about 11 percent of total cash remittances in 2021.

“The other risk is the current resurgence of coronavirus, especially in OF (overseas Filipinos) host economies such as Hong Kong and South Korea,” he added.

BSP has been optimistic on the future prospects of remittances for decades. The central bank has been pursuing initiatives to enhance the environment of remittances as one of the country’s primary foreign currency source. These include: enhancing transparency and fostering competition in the remittance market; promoting efficient and speedy transfer of funds to beneficiaries particularly in remote areas of the country; and encouraging overseas Filipinos and their families to channel remittances into savings and investments.

“I’m very optimistic about the prospects of overseas Filipino remittances in the light of the recent pandemic and the fact that our median age of Filipinos is 24-25 and we have a very young population, compare to that of an aging population globally,” said Diokno.

“We should just focus on educating, training our young people so that they have the opportunity to go abroad if they want or if they want to stay,” he stressed. “In the future, we will be extending better trained and maybe highly paid workers abroad compared to the present system. Maybe we can send more doctors, nurses, medical workers, data analysts (because) these are what’s being demanded by the post-pandemic economy.

So, I am very optimistic that post-pandemic, we will be sending higher quality people abroad but I think the responsibility of government really is to spend money to train our young people,” added Diokno.

Remittances going forward will get a boost from the accelerated vaccination rollout domestically and in host economies, easing of travel restrictions and reopening of countries to foreign workers.

The BSP cites the World Bank which has projected that remittances from East Asia and Pacific will grow by 3.3 percent in 2022. “Oxford Economics projects a growth in Philippine remittance inflows of 5.4 percent this year. Compare that with BSP’s projection that Philippine remittance inflows will grow by four percent,” said Diokno.

The 2021 remittances of $31.418 billion is equivalent to about eight to nine percent of nominal GDP.

In terms of income from exports of goods and services, remittances has a ratio of 32 to 37 percent. It also has a 26 to 37 percent equivalent vis-à-vis the gross international reserves.

Diokno said that based on these numbers, remittances are “a key contributor to the Philippine economy as one of the most stable sources of foreign exchange (FX).”

Even amid the pandemic, in 2020 and 2021, remittances supported the recovering economy through consumer spending which have positive multiplier effects. The FX sent home by migrant workers are spent on food and other household needs, as well as to pay for education, medical expenses and savings.

“These inflows generated much needed FX resources that helped meet the requirements of the economy even as external demand was weighed down by the global health crisis,” said Diokno. “Adequate supply of FX ensures a healthy balance of payments position and an adequate level of GIR in the face of mounting challenges to the external sector,” he added.

To ensure remittances remain resilient, Diokno said there are four key factors driving it such as increased global demand for Filipino medical practitioners and health care workers, and skilled labor in construction and housekeeping. “These jobs help host countries in the pandemic recovery process. In fact, total deployment of OFWs (overseas Filipino workers) in 2021 went up by about 35 percent, representing 745 thousand OFWs. This was a strong rebound from the 75 percent decline in OFW deployment in 2020,” noted Diokno.

Another key factor is the bilateral labor initiatives with other governments. At the moment, the Philippines have Bilateral Labor Agreements with Canada, Russia, China and Bangkok

For a continued resilient remittances segment, Diokno said there should be increased use of digital financial services to facilitate remittance transfers, another key factor.

“Finally, the resilience of remittances is supported by altruistic motives,” said Diokno. “Some overseas Filipino workers tend to send higher remittances for their families back home during hard times to support their consumption needs,” he said.

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