Remittances not sufficient for long-term growth

Remittances from overseas Filipinos can lick poverty in the Philippines, but cannot rebalance economic growth, according to an Asian Development Bank (ADB) study.

In its study titled, “Remittances and Household Behavior in the Philippines,” the Manila-based bank reported that it did not find evidence to support the widely held belief that money sent home by millions of overseas Filipino workers (OFWs) enhances human or physical capital development.

”This implies that these flows may not help in rebalancing growth toward domestic demand,” the ADB explained.

”By increasing household investment in human and physical capital, remittances have the potential, at the aggregate macroeconomic level, to rebalance growth toward domestic demand and to create long-term growth,” it said.

The ADB said that remittances to the Philippines do not have a “significant influence on other items of consumption or investment.”

Helpful against poverty

In the case of medical expenditure, the bank reported that the remittances were positive but insignificant. Also in the report, ADB added that remittance was negative and insignificant for education and durable spending.

”Remittances, thus, may help in fighting poverty in the Philippines but not in rebalancing growth, especially in the long run,” according to the report.

As of third quarter last year, the Bangko Sentral ng Pilipinas reported that out of the households that received remittances, 93 percent spent part of the money for food and other household needs, 72 percent for education and 63 percent for medical expenses.

The ADB also said that while remittances shielded the economy during crisis situations in the past, the current global economic crisis has brought a new challenge to the role of remittances.

”Weak global demand for goods and services and slower economic growth, along with consequent rise in unemployment in host countries, has put the demand for Filipino workers and their remittance transfers at risk,” the bank added.

The Commission on Filipinos Overseas (CFO) estimated that almost 10 percent of the Philippine population lives outside the country. The latest estimate puts the population at about 92 million.

Toward the end of 2010, the ADB said that the Philippines would have completed a generation of international migration and remittance experience.

Impact of global crisis

The bank added that based on the new hires data from the Philippine Overseas Employment Administration (POEA), the bulk of the current batch of workers has shifted to lower skilled and lower income work.

”The significant relative decline in the new hiring of professionals reveals that the lower salaried services and construction workers are supporting the sustained level of remittance inflows,” the ADB said.

Given this, the lender added that it could be deduced that the Philippines has started to be affected by changing global demand as early as 2006.

”Prior to the global crisis in 2008, demand for Filipino workers started to move away from professionals to other worker categories, as can be seen from the increased number of deployed domestic and production workers,” the ADB said.

It added that the decrease in demand for professionals would have an effect in the domestic economy, but it was not expected to be as large if domestic workers and production workers were affected by the crisis.

”Most professionals are generally flexible in finding other work opportunities and have the potential to become permanent residents, unlike domestic and production workers who have fixed contracts and are susceptible to fluctuations of business of their employers,” the ADB explained.

Production workers, in contrast, were directly hit by the crisis since they were mostly involved in export industries and construction projects in receiving countries, the report said.

This is validated by the impacts of closing down of factories in Taipei, hotels in Macau, and construction delays in the Middle East.

On the other hand, most domestic workers were virtually shielded from the crisis because most of their employers have gotten used to a lifestyle with domestic help.

”Besides, the pay of these workers is relatively affordable despite the crisis. This was also the lesson of the 1997 crisis when the demand for this group remained the same,” the ADB reported. –DARWIN G. AMOJELAR Senior Reporter, Manila Times