OFW remittances may have peaked, warns central bank

THE Philippine central bank warned on Friday that money sent home by overseas Filipino workers (OFWs) has peaked and may soon plateau. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said remittances have breached a very large base, leading to a situation wherein the growth of inflows wa stabilizing at the mid-single digit levels of between 5 percent and 6 percent.

“Probably a few years ago we were seeing base effects, but I think at this point when you have close to $15 billion to $17 billion—and its going to about $19 billion to $20 billion—I think we have reached some critical number,” Guinigundo said.

While the economy should not depend exclusively on OFW remittances, the best policy options is “precisely to maximize whatever we can in terms of our overseas workers providing remittances from abroad,” he said.

“If you look at various initiatives of government, they actually resulted in a situation where overseas workers have, to some extent, achieved financial independence,” he added, referring to efforts to encourage OFWs to invest their money in the country—be it in financial instruments or entrepreneurial activity.

Remittances grew 5.4 percent to $1.5 billion in April from last year’s $1.44 billion, bringing this year’s four-month tally to $5.9 billion.

For 2010, the BSP forecast remittances to grow by 8 percent from an earlier estimate of 6 percent.

The resilience of remittances has allowed the Philippines to enjoy a $2.733 billion balance of payments (BOP) surplus at end-May or 27.5 percent higher than the $2.143 billion last year.

For this year, the central bank projects a BOP surplus of $3.7 billion from an earlier forecast of $3.2 billion.

The BOP summarizes the country’s economic transactions with the rest of the world, with a surplus indicating dollar earnings outstripping payments. In contrast, sustained deficits erode the country’s dollar reserves, in turn pulling the peso and raising domestic inflation.

The central bank also expects an improved current account position of $8.6 billion or 4.6 percent of the country’s gross domestic product (GDP), from $4.5 billion or 2.5 percent of GDP earlier.

As the current account returns to pre-crisis levels, Guinigundo however discounts the possibility of the resumption of the boom-and-bust cycle that has upset the Philippines’ growth momentum.

According to the BSP official, the country has withstood the worst of the global financial crisis, with the economy growing, albeit at below the country’s average growth path.

“We should recognize the contribution of a number of structural reforms that have been undertaken in the last few years and they have contributed also in the resiliency of the economy. I think the best proof that we have not [seen] the so-called boom-and -ust cycle is that through the worst of the global financial crisis the economy remained in positive territory,” he said.

Guinigundo attributed the economy’s resilience not only to remittances but also to other government reforms such as the value added tax (VAT) and deregulation of both power and oil sectors.

“The VAT is one of the important reforms that has also boosted market confidence, and that’s why people investing in the Philippines are contributing to the formation of domestic capital,” he said. –LAILANY P. GOMEZ REPORTER, Manila Times