Nomura: Impact of oil on remittances overblown

Concerns on the possible fall of the country’s remittances once oil-producing countries start laying off jobs have been “overblown,” according to the research group of an international financial institution.

In its latest assessment on the external position of the Philippines, Japan-based Nomura group said remittances are still likely to remain strong amid possible layoffs in the Middle East due to the prevailing low prices of oil.

“Of particular concern for investors has been the impact of lower oil prices on remittances, given that 2 million overseas Filipinos are based in the Middle East. However, we believe that these concerns are overblown,” Nomura said.

“Filipino workers in the Middle East, who are most prone to layoffs, are the semi-low-skilled workers with relatively low per-capita remittances. In addition, the terms-of-trade benefits help to offset the potential impact of lower oil prices on remittance,” it added.

Despite shaky growth rates for 2015, cash sent by Filipino migrant workers had a good showing in the last month of the year, with record-high monthly remittance pushing the growth above government’s target for the year.

The Bangko Sentral ng Pilipinas (BSP) reported last week that the country’s overseas Filipino workers (OFWs) remittances hit a total cash-remittance value of $25.767 billion in 2015, posting a 4.6-percent growth from 2014.

The growth rate of cash remittances was faster than the 4-percent expansion forecast by the Philippine government for the year.

The December OFW remittances hit $2.47 billion—the highest monthly inflow to date.

Data from the central bank showed that remittances from the Middle East hit $5.98 billion in January to December in 2015, growing by 10 percent from the $5.428 billion seen in the same period in 2014.

Nomura said a number of other structural factors mitigate the risks to remittances from workers in the Middle East and the global energy sector. This includes the increased geographical diversification of remittances in recent years, an increased proportion of the contribution from more skilled workers in service sectors with strong demand, as well as higher per-capita remittances reflecting better proportion of higher-income workers.

“We conducted a survey of overseas based Filipinos to support these findings,” Nomura said.

Meanwhile, Nomura also said global developments in recent months have increased the pressure on the Philippines’s balance of payments position and the peso.

“These include increased financial-market volatility and continued concerns over China’s economic slowdown, the impact of policy normalization from the Federal Reserve and worries over the impact of lower oil prices,” Nomura said.

The BSP said the sustained growth in personal remittances during the year was driven by the steady increase in remittances from land-based and sea-based workers.

The BSP also said the 2015 remittance number equaled 9.8 percent of local output, or the GDP, and 8.1 percent of the country’s gross national income.

The continued deployment of skilled workers was a key factor to continued remittance growth, according to the central bank.

Preliminary data from the Philippine Overseas Employment Administration indicated that the number of deployed workers in 2015 reached 1.8 million.

These job orders were intended mainly for service, production and professional, technical and related workers in Saudi Arabia, Kuwait, Qatar, Taiwan and Hong Kong.

For this year, the government expects remittances to grow by another 4 percent. –Bianca Cuaresma, Businessmirror