OFWs’ remittances seen tapering off in medium term; BPO to take up slack

FILIPINO households must prepare for weaker remittance flows as the number of deployed overseas Filipino workers (OFWs) has started to plateau.

In a briefing on Tuesday, Ateneo de Manila University’s EagleWatch Senior Fellow Alvin Ang said remittances are only expected to grow 2.7 percent this year.

Ang said the growth of remittances started tapering off last year and will continue to do so at least in the medium term.

“Remittances is going to weaken a bit because you have lower deployment and the [number of] professionals are going down. On a per-capita basis, your average remittance will fall because the bulk of the remitters are lower skilled, therefore, the monthly remittance will be lower,” Ang said.

“The bulk of the workers are really service and lower skilled workers. Because of that, we are seeing that remittances will taper off, maybe this year, 2.5-percent growth would be the norm and that will be like for the next few years, very slow growth,” he explained.

Most of the country’s remittances now come from service workers and production workers. The share of remittances from higher-paid professional and technical workers have been on the decline in the past 15 years.

Ang said the sector that can take up the slack is the business-process outsourcing (BPO) sector.

He said in three to five years, dollars earned by the BPO sector will equal the amount sent by OFWs.

The former president of the Philippine Economic Society said the growth can be driven by contact centers, as well as other BPOs and software development. But if growth will increase, particularly in animation and other “creative” BPOs, then the projected growth may be even faster in the coming years.

“We think right now, it will remain double-digit growth in revenue for 2016, and maybe in the next few years, we will revise our forecast if we see that significant numbers are coming from other sectors,” Ang said.

“Probably in the next three years, they will equal OFW remittances because right now, it’s about two-thirds of remittances. So if the trend continues, it will equal the total number of dollars received,” he added.

Meanwhile, in terms of full-year growth in 2016, Ang said EagleWatch expects growth to average between 6.3 percent and 6.5 percent.

Ang added that Eagle Watch expects year-on-year GDP growth per quarter to be above 6 percent. The highest expected growth for 2016 will be in the second quarter, at 6.72 percent.

In the first quarter, growth is expected to reach 6.38 percent and in the third quarter, 6.17 percent. In the last quarter of 2016, growth is projected to reach 6.34 percent.

The country’s exchange rate is projected to average 48.50, or around 47 to 50 against the US dollar.

Inflation, Ang said, would likely fall below 2 percent in 2016. He estimates inflation could average 1.6 percent this year.

Challenges

While the presidential election is bound to provide a major boost to GDP this year, there is a lot of uncertainty riding on this political exercise.

Ang said, for one, the current administration will be a tough act to follow considering that many of its achievements, most notable of which is the country’s investment-grade status, have never been done before.

He said the next administration will be hard-pressed to maintain the country’s investment-grade status because any downgrade would become a threat to the Philippine economy. On top of this, the next administration also faces considerable headwinds, particularly from the volatility of global markets and climate change.

Ang added that given that 60 percent of the country’s economic growth is derived from Metro Manila and Calabarzon, the next administration must address the worsening Metro Manila traffic. He said traffic in the megacity of 14 million Filipinos is a threat to the goal of increasing labor productivity in the country. This is just one of the many economic losses attributed to traffic.

In the medium term, Ang said, the next administration also needs to address inclusive growth and how to make the poor benefit from economic growth. It also needs to continue investing in social protection and increase the Philippines’s share in the global supply chain. –Cai Ordinario, Businessmirror