OFW remittances may drop by $5 B this year

Remittances from overseas Filipino workers (OFWs) may drop by $5 billion this year as emerging markets, including the Philippines, face numerous challenges brought about by the coronavirus pandemic, according to Metropolitan Bank & Trust Co. (Metrobank).

Pauline Revillas, research analyst at Metrobank, said the weak global demand, lower foreign direct investments (FDIs) and portfolio outflows may result in a sustained drop in remittances.

“Remittances to low and middle-income countries amounted to $554 billion in 2019 and are seen to drop by 20 percent this year due to the pandemic. For the Philippines, remittances are seen to decline by around $5 billion this year,” Revillas said.

Remittances have been accelerating since 2002 with cash remittances 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.

OFW remittances last contracted to $6.03 billion in 2001 from $6.05 billion in 2000 primarily due to the Asian financial crisis and the political controversies during the Estrada administration.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed cash remittances coursed through banks declined by 6.4 percent to $11.55 billion from January to May compared to $12.35 billion in the same period last year, while personal remittances slipped by 6.4 percent to $12.83 billion from $13.71 billion.

For May alone, cash remittances plunged by 19.3 percent to $2.11 billion from $2.61 billion in the same month last year, while personal remittances fell by 19.2 percent to $2.34 billion from $2.89 billion.

This was the biggest drop for both cash and personal remittances in almost two decades or since the 30 percent plunge in January 2001.

Revillas said several headwinds would continue to dampen remittance flows to emerging economies as global economic recession result in massive unemployment.

She also cited health policies that restrict the movement of people and operation of businesses, as well as the closure of non-essential services including money transfer businesses.

“A major drawback of the pandemic is that it has affected the usual cycle of remittances wherein during times of economic hardships, more remittances are expected to be sent to home countries. The pandemic, unfortunately, has prevented these flows to follow that cycle,” Revillas said.

Remittances, accounting for about 10 percent of the country’s gross domestic product (GDP), started to decline in March.

The BSP now expects remittances to drop by five percent this year.

Despite lower remittances, the peso continued to strengthen against the dollar, gaining by about three percent to close at 49.041 to $1 last Friday, its strongest in almost four years or since closing at 48.95 to $1 in Nov. 11, 2016.