Remittances slump may continue through 2021 as OFWs face layoffs

CASH REMITTANCES may continue to decline through 2021, as more overseas Filipino workers (OFWs) are expected to lose their jobs.

In a note on Monday, IHS Markit Chief Economist for Asia-Pacific Rajiv Biswas said remittances will remain lower than pre-pandemic levels as 178,000 OFWs have already returned home amid the pandemic with more expected to follow.

“There have been significant job losses among Filipino workers abroad, with an estimated 178,000 workers having returned home in the first eight months of 2020 according to the Department of Foreign Affairs (DFA), with a similar number of further repatriations expected for those who have lost their jobs already... This large decline is likely to result in lower remittance inflows in coming months and during 2021,” Mr. Biswas said.

He estimated eight percent of OFWs may have returned home already, based on the number of repatriated workers relative to the 2.2 million OFWs counted in the 2019 Survey on Overseas Filipinos. The government estimates 300,000 OFWs will return to the country this year as companies lay off workers due to the global economic slowdown.

Money sent home by OFWs rose by 7.8% to $2.783 billion in July from a year ago, the highest in seven months. Year-to-date remittances fell by 2.4% to $16.802 billion.

The International Monetary Fund (IMF) said in a blog last month the recent uptick in remittances may be due to migrant workers’ tapping into their savings so they can send money to their families dealing with the crisis back home.

If the scenario proves to be true, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa warned the rebound “may not be sustainable and that we can expect a contraction in remittances both this year and next with the stock of overseas Filipinos based abroad likely depleted.”

Mr. Mapa said they project a 10% drop in remittances this year and a flat growth in 2021 mainly due to base effects.

“The loss of the usual steady and reliable stream of foreign exchange could complicate the economic recovery with authorities banking on consumption to carry the load for a quick bounce back. Slower or less remittance flows would mean that the remittance boost will be less punchy and that the support for (Philippine peso) next year will be limited to some extent,” he said in an e-mail Monday.

Remittances have been the “economy’s escape valve” in the past, Mr. Mapa said, as they stimulate growth through domestic consumption and help sustain a steady stream of foreign currency.

IHS Markit’s Mr. Biswas said the economy will likely contract by 8.2% this year. A 7.7% growth next year can be achieved if a COVID-19 vaccine will be available, he said.

“Over the medium term, the Philippine economy is forecast to return to its previous high growth path, growing at a pace of between 5% and 6% per year. The strong pace of expansion will be underpinned by the growth pillars of renewed strong expansion in domestic consumer spending, rapid growth in government infrastructure spending and rapid growth in exports of manufactures and IT-BPO services to key global markets,” he said.

Mr. Biswas said higher foreign direct investment flows would also help sustain growth as the country becomes more competitive regionally and positions itself as an ASEAN manufacturing hub.