BSP confident of double-digit growth in OFW remittances

MANILA, Philippines – Bangko Sentral ng Pilipinas (BSP) officials said a double-digit growth in remittances from overseas Filipinos is still possible in the first two months of the year, especially if the robust growth in labor export could be sustained for the rest of the year.

The BSP had projected remittances to post a zero growth rate this year, with total inflows expected to stabilize at an average of at least P1 billion every month.

But the BSP said initial indications from the country’s major remittance banks showed that remittances have remained sturdy in January and February although the scenario could still change in the remaining months of 2009.

Speaking before the 2009 Convention of the Chamber of Thrift Banks yesterday, BSP Deputy Governor Diwa Guinigundo said that if the deployment of Filipino workers continued to be strong, it is possible for remittances to rise this year instead of staying flat.

In 2008, remittances reached $16.4 billion despite a marked slowdown in December when remittances grew by less than one percent compared with the 2007 level.

This year, the BSP expects remittances to just match the 2008 level, anticipating the retrenchment of Filipinos working in developed economies hardest hit by economic recession.

The BSP’s flat growth projection for 2009 would mark the first time that remittances would not expand since the country stated exporting workers in the 1970s.

At the start of the crisis, OFW inflows had been projected to grow by six to nine percent – itself the first time that the annual growth rate is projected to fall below double-digit levels.

But Guinigundo said there are reason to expect remittances to remain strong this year. He said at least two major banks reported sustained strong inflows from overseas Filipinos during the first two months of the year.

“We will see growth probably beyond the growth level we saw in December,” Guinigundo said.

According to Guinigundo, both credit rating agencies and international funding institutions look at the country’s remittance levels closely since this factor has made the country unique.

“Regardless of instability elsewhere, Filipinos always manage to find jobs,” Guinigundo said. “So remittances have always been very stable.”

Guinigundo said that if the global economy is in recession, textbook economics indicated that demand for labor would also go down and ultimately affect inflows from Filipinos working abroad.

“But that has not been the case,” Guinigundo said. “We lose markets, we gain new markets. If I were to look at some of the sources of resiliency, I would look at remittances.”

Outside the BSP, private banks have been expecting remittances to actually decline this year, with HSBC earlier projecting a decline in monthly remittances of as much as 25 percent sometime this year.

Citigroup, on the other hand, expects the growth in remittance inflows to drop dramatically in 2009 from 13 percent this year to only three percent as a result of wage cuts and job losses in the overseas job market.

Citi noted that while remittances in December looked “decent”, the growth rate had actually slowed down and there was a headcount loss of 5.8 percent.

The government is counting on labor demand in countries like Canada, Australia and Qatar to pick up some of the slack in other labor markets but Citi said this might not be enough.

But Citi said its projections showed only a three percent growth—dramatically slower but still better than earlier projections made by Hongkong Shanghai Banking Corp (HSBC) which was expecting remittances to decline by a whopping 20 percent this year.

HSBC said that while remittances in the Philippines have historically proven resilient in the face of tumbling growth elsewhere, the severity and synchronicity of the current plunge in global growth were bound to eventually take their toll on the ability of OFWs to sustain flows.

HSBC said it would take a “rather substantial” fall in remittances to raise worries about the emergence of a structural external payments imbalance. However, the bank said there are few economies and industries that remained unaffected by the global slump unlike the tech bust of 2001 or the Asian financial crisis where some industries were spared.

Moreover, HSBC said the sensitivity of remittances to the Middle East has risen in recent years, which provided an especially acute risk given the region’s exposure to slumping oil prices. – Des Ferriol, Philippine Star