OFW inflows seen dropping to $11.4 billion this year

MANILA, Philippines – Remittances from overseas Filipino workers (OFWs) could drop to as low as $11.4 billion this year, cutting the country’s economic growth down to two percent due to the expected decline in consumption spending.

The worst impact, however, would be on the fiscal deficit which analysts could widen to as high as P238 billion compared with the P177.2-billion target.

Citibank said yesterday in its Asia-Pacific market analysis that while remittances would show flat to slightly positive growth in the first two months, the emerging worst case scenario was in the range of $11.4 billion to $13 billion for the whole of 2009.

Citi analyst Jun Trinidad said in the Citigroup global markets report that the “global stocks” of overseas Filipinos would diminish as new hires and rehires are expected to drop by 37 percent to as much as 51 percent amid lower demand for labor.

At present, the government estimated that there was a total of 8.7 million Filipinos overseas, accounting for 10 percent of the country’s total population. But Trinidad said Citi estimates that jobs deployment may to drop back to the 2001 level of 800,000 compared with the one-million annual deployed since 2006.

Trinidad said that the overseas headcount loss with an average monthly contribution remaining constant, would yield remittances of about $13 billion. But he said if wages were cut by 14 to 15 percent in order to preserve existing jobs, remittances would fall to as low as $11.4 billion this year.

The effects of declining remittances would have far-reaching effects on the Philippine economy that has been long-dependent on funds sent by Filipinos working abroad for lack of better employment opportunities here.

Trinidad said the worst-case remittance scenario would cut the gross domestic product (GDP) growth and the current account surplus, at best, would fall to $1.36 billion. At worst, he said the surplus would turn into a $219-million deficit.

But Trinidad said the bigger worry, beyond slowing growth, was the impact of falling remittances on the country’s fiscal balance. He said a drop this size would expand the budget deficit to three percent of GDP, equivalent to about P229 billion to P238 billion.

“Whether the government would be in the position to cut spending and prioritize fiscal deficit containment rather than growth would be the difficult policy choice to make,” Trinidad said.– Des Ferriols, Philippine Star