Impact of drop in remittances to GDP minimal, says BSP

by Lawrence Agcaoili (The Philippine Star), 26 Oct 2020

MANILA, Philippines — The projected two percent decline in remittances from overseas Filipino workers (OFWs) due to the COVID-19 pandemic may have minimal impact on the economy, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diok-no said risks to OFW remittances remain on the downside due mainly to the continued large repatriation of displaced workers, the 61.8 percent drop in deployment from January to July and remaining containment measures in some places in host countries.

“Now the expected two percent decline in OFW remittances in 2020 is expected to have a minimal impact in gross domestic product,” Diokno said.

The Monetary Board is now looking at a smaller two percent contraction in OFW remittances due mainly to better-than-expected performance in June and July, as well as the easing of lockdown measures in host countries.

Based on earlier estimates by the BSP, the supposed five percent drop in OFW remittances would slow down the country’s GDP by about 0.4 percent this year.

Latest data from the central bank showed both personal remittances, as well as cash remittances coursed through banks, declined by 2.6 percent from January to August.

Personal remittances amounted to $24.41 billion during the eight-month period from $21.99 billion in the same period last year, while cash remittances reached $19.28 billion from $19.81 billion a year ago.

Diokno said latest data from the Department of Foreign Affairs (DFA) showed that OFW deployment reached 223,284 as of Oct. 18. This consisted of 73,870 sea-based workers and 141,424 land-based OFWs.

Diokno said the Department of Labor and Employment (DOLE) estimates that around 500,000 OFWs have been affected by the pandemic. He added the Labor department said 200,000 more OFWs would be affected if the global health crisis continues to worsen until the end of the year.

However, Diokno said deployment of OFWs have been improving to 7,631 in June and further to 14,824 in July from only 2,500 in May as more host countries started to reopen their economies.

Data showed OFW remittances last contracted to $6.03 billion in 2001 from $6.05 billion in 2000 primarily due to the Asian financial crisis.

Remittances have been accelerating since 2002 with cash inflows coursed through banks rising by 4.1 percent to an all-time high of $30.13 billion last year from $28.94 billion in 2018 and personal remittances increasing by 3.9 percent to $33.47 billion from $32.21 billion.

For 2021, Diokno said OFW remittances would bounce back with a growth of four percent. Remittances contribute about nine percent to the country’s GDP.

“Once the risks related to COVID-19 pandemic start to dissipate and global activity start to normalize, I expect remittances to begin its growth momentum,” the BSP chief said.