Buying power of OFW remittances shrinks

MODEST growth of remittance flows to the Philippines are expected to sustain, but the buying power of Filipino recipient fell because of the appreciation of the peso and inflation, according to World Bank.

In its Migration and Development Brief, the Washington-based lender said remittance flows to developing countries including the Philippines are expected to grow at lower but sustainable rates of 7 percent to 8 percent annually during 2011 to 2013.

For this year, the Bangko Sentral ng Pilipinas (BSP) projects remittances to grow by 7 percent to $20.1 billion.
With a global economic recovery underway in 2010, the lender said remittance flows to all six developing regions registered positive growth in 2010.

The World Bank, however, said that the value of remittance last year to the developing countries shrunk because of the nominal appreciation of their currency against the dollar.

In the Philippines, the World Bank estimated that remittance flow reached $21.4 billion last year, up by 8.1 percent compared to a year ago.

But the country’s remittance slowed to 2.3 percent in local currency because of the appreciation of the peso against the US dollar.

The growth of remittances in local currency terms adjusted for inflation, the Philippines, experienced a 1.4 percent contraction.

The BSP reported that remittances to the country reached $18.763 billion in 2010, exceeding its forecast of $18 billion for the period.

“The reduction in local currency value of remittances implies hardship for recipients, and increased pressure on migrants to send more to maintain the purchasing power of their remittances,” the World Bank said.

For instance, while remittances to India, the largest recipient in 2010, are estimated to have grown by 7.4 percent in US dollar terms, it experienced an almost flat growth of 1.5 percent in local currency.

Since India also had a relatively high rate of inflation in this period, the purchasing power of remittances actually decreased by 10.4 percent.

The bank said remittance flows to countries in South Asia grew briskly in the first quarter of 2011, but are expected to slow in 2012 to 2013 in a lagged response to the global crisis and the ongoing turmoil in North Africa, which resulted in a slowdown in outward migration from South Asia.

In the Philippines, BSP reported that remittances amounted to $4.6 billion in the first quarter of 2011, 5.9 percent higher than the level recorded on the same period a year ago,

About 80 percent of remittances were sourced from the US, Canada, Saudi Arabia, United Kingdom, Japan, Singapore, United Arab of Emirates and Italy.

“Flows to developing countries in the Middle East and North Africa region are expected to grow at roughly half of the rate in 2011 compared to the previous year because of the ongoing crisis in the region,” the World Bank said.

The lender added that the crisis together with the recent earthquake in Japan in March is expected to result in a lower growth of remittances to the East Asia region in 2011.

“Remittance flows to Eastern Europe and Central Asia region are still below the level in 2007, but are expected to increase steadily at between 8 [percent] and 9 percent in 2011 to 2013,” the World Bank said.

The crisis in the Middle East and North Africa has brought a great deal of uncertainty for migration and remittance flows. These political crises and the recent global financial crisis have highlighted, once again, the need for high-frequency data on migration and remittances. –Darwin G. Amojelar Senior Reporter, Manila Times