Remittances of Filipino workers abroad will continue to help the Philippine economic growth but at a much slower pace in the next five years.
This is according to a research note by Hong Kong and Shanghai Banking Corp. Ltd., (HSBC) economist Joseph Incalcaterra. According to him, “although the medium-term outlook for remittances remains “constructive” as demand for Filipino workers “should remain strong” – over the longe (sic) term, remittances growth may slow down and lead to a moderation in the Philippine current account surplus.”
He believes that this is “natural and perhaps inevitable” noting that “the effect of remittances on growth and current account will wane over time” due to economic expansion and infrastructure buildup.
Moreover, the Banko Sentral ng Pilipinas or BSP recently revised its 2016 forecast from 5% to 4% as growth will naturally moderate due to base effects.
The slowdown will happen unless the amount of Filipinos abroad increase dramatically.
The slowdown in migrant remittance is not only true for the Philippines. The World Bank forecasts the same happening globally due to weaker currencies vis-à-vis the US dollar, weak economies in Europe especially in Russia and the dip in oil prices.
In fact, the growth of remittance back in 2010-2013 was at a high 7.1 percent per year. It slid to 3.3 percent in 2014 and just 2 percent in 2015.
Migrant remittances had long been the lifeline of many families in developing countries.The resilient and countercyclical nature of remittances help buoy developing economies especially during economic downturns and natural disasters. During times of need in their home country, remittances increase and pour in. If problems in the migrants’ host country arise, migrants simply work harder and save as much as possible.
One of the things that needed to be addressed for migrant workers sending money is the high transaction cost. For both the World Bank and International Monetary Fund (IMF) decreasing the amount of transaction cost would help migrants and their families greatly. This should be addressed now more than ever as a slowdown may affect growth of developing countries greatly.
The good news is, in the Philippines, the growth of the Business Process Outsourcing (BPO) and related industries may offset effects of the decline in migrant remittances. BPO revenues are expected to reach 25.5 billion in 2016.
Creating more quality jobs should be the focus of the government. The Standard Chartered Bank suggests that the Philippines should continue to improve its unemployed and underemployed numbers. The bank said that boosting employment should boost trend growth.“We estimate that now and 2020, the Philippines’ trend GDP growth rate will improve by 0.1 percentage point (ppt) if 1ppt of the percentage of people currently not in the labor force obtain full-time employment…. For every 1ppt reduction in unemployment and underemployment, the trend growth rate shall improve by 0.07 and 0.03 respectively, in the same period.”
The Philippine economic outlook is positive with the growing domestic economy. Mr. Incalcaterra, however, cautions that this period of sustained higher growth that the country is experiencing now will decrease the share in the GDP and current account of the remittances. This means that the Philippines’ natural external buffer that has provided a back-stop for growth in times of challenges may erode, leaving the Philippines slightly more exposed to global cyclical currents.”