Remittances to fall sharply

World Bank worried about US slowdown
 
Remittance flows to developing countries, including the Philippines, were expected to fall sharply this year because of the impact of the US economic and construction sector slowdown, a new World Bank report said.

In a new report titled, “Migration and Development Brief,” the Washington-based lender said remittance flows this year were expected to decline even more sharply than projected earlier because of a deterioration in the economic and employment situation in the migrant-destination countries in the first half of this year.

Based on the revised projections by the World Bank, global economic growth was expected to contract by 2.9 percent in 2009.

Next year, global gross domestic product (GDP) growth is expected to rebound to 2 percent in 2010 and 3.2 percent by 2011. GDP, a key economic indicator, is the total cost of all goods and services produced in a country in a year.

Contraction seen

In line with this outlook, the lender said, “We expect that remittance flows to developing countries could decline by 7 percent to 10 percent in 2009, with a possible recovery in 2010 and 2011.”

World Bank said remittance flows to developing countries were projected to contract by 7.3 percent to $304 billion from an estimate of $328 billion last year. In East Asia and Pacific, remittances were likely to fall by 5.7 percent to $74 billion this year.

The lender earlier projected that remittances flow in developing countries to contract by 5 percent this year.

The World Bank blamed the gloomy remittance projection on the US economic and construction sector slowdown, unfavorable foreign exchange rate, as well as the rising protectionism in the destination countries.

”The impact of the US economic and construction sector slowdown has been felt with a lag on remittance flows to Latin American countries,” the bank said, adding that a similar lagged response in remittance flows to South Asia and East Asia may arise from the current slowdown in economic activities in the Gulf Cooperation Council (GCC) countries.

”This is especially relevant for Kerala [India], Bangladesh, Sri Lanka and the Philippines that have migrant workers in the construction sector in Dubai,” World Bank reported.

Biggest senders

The National Statistics Office earlier reported that laborers or unskilled overseas Filipino workers (OFWs) were the biggest source of cash remittances, belying claims of the Bangko Sentral ng Pilipinas (BSP) that highly skilled Filipino workers were responsible for the bulk of money sent home.

The central bank had maintained that highly skilled OFWs, such as those in the health professions, were propping up remittances despite a global economic slowdown.

The National Statistics Office said laborers or unskilled workers posted the highest cash remittance of P19.5 billion among the different occupation groups.

The agency reported that 20.4 percent of OFWs worked in Saudi Arabia. One in every seven worked in United Arab Emirates. Singapore, Hong Kong, Japan, Qatar and Taiwan were also popular destinations of OFWs. Those who worked in Europe comprised 9.4 percent, while those in North and South America accounted for 8.4 percent.

OFWs working in Asia comprised 78.2 percent and sent the biggest cash remittance of P69.9 billion.

From January to May, remittances reached $6.98 billion or a 2.8-percent increase from the level recorded during the same period last year.

In May alone, money sent home to the Philippines through banks grew by 3.7 percent to $1.48 billion.

Lifeline to the poor

”Remittances provide a lifeline to many poor countries,” Dilip Ratha, lead economist in the Development Prospects Group of the World Bank said. “Although they remain resilient, even a small decline of 7 [percent] or 10 percent can pose significant hardships to the people and to governments, especially those facing external financing gaps.”

The World Bank cited three key sources of risk to the outlook for remittance flows this year. First, if the crisis were deeper and longer than currently projected, the decline in remittance and migration flows would be steeper.

Second, were the unpredictable movements in the foreign-exchange rates. “If the exchange rates of these remittance sources weaken, it would result in an even greater decline in remittance flows to developing countries,” according to the World Bank.

Finally, World Bank said the political reaction to weak job markets in destination countries could lead to more tightening of immigration controls.

The bank said that almost all major destination countries—for example, the United States, the United Kingdom, Australia, Malaysia, Russia, South Africa, Italy, Spain, India—have reduced the annual quotas or imposed tougher standards for immigrant workers. –Darwin G. Amojelar, Senior Reporter, Manila Times