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Remittance slowdown risks tagged

March 15, 2019

The Philippines is expected to continue posting strong growth but a slowdown in remittances will likely contribute to a widening current account deficit and make the country vulnerable shifts in investor sentiment, a London-based consultancy said.

A man counts US dollar bills at a money changer in Ermita, Manila. FILE PHOTO

“Remittance growth to the Philippines has slowed steadily over the past decade and looks set to remain subdued over the next few years. While weak remittance growth is likely to act as a drag on consumption and investment, overall GDP (gross domestic product) growth should continue to hold up pretty well,” Capital Economics said in a report on Thursday.

“We are more concerned that the slowdown in remittance growth will contribute to a further widening of the current account deficit, and make the Philippines more vulnerable to sudden shifts in global risk appetite,” it added.

Money sent home by overseas Filipino workers hit an all-time high last year. Personal remittances amounted to $32.21 billion, up by 3.0 percent from a year earlier, while cash remittances likewise grew by 3.1 percent to $28.94 billion.

Capital Economics, however, said last year’s growth was the “weakest pace since 2001.”

The think tank attributed the decline to the “improved performance” of the local economy, which it said “made it easier for people to find employment at home and reduced the need for them to go overseas in search of work.”

“A second has been the economic downturn in the Middle East. The region is the source of 30 percent of remittances to the Philippines, and there has been a marked slowdown in remittances from the region over the past few years,” it added.

These factors are expected to continue weighing on remittances and Capital Economics said it expected growth to average 3 percent yearly over the next few years.

“Remittances to the Philippines are equivalent to around 10 percent of GDP and weak remittances are likely to act as a drag on consumption and investment. However, with fiscal and monetary policy set to be loosened this year, economic growth should remain fairly strong,” it said.

With regard to the balance of payments, Capital Economics noted that “the current account has gone from a surplus to a deficit over the past couple of years and is likely to widen further over the next couple of years. While the main driver of the shift has been a surge in imports of capital goods and raw materials as the government’s infrastructure drive has gathered pace, weaker remittances (which are included as part of the current account) have also been a factor.”

“The large current account deficit, which is now equivalent to around 3 percent of GDP, makes the currency more vulnerable to sudden shifts in global risk appetite,” it said.

“This is a big worry given that foreign currency debt in the country is equivalent to around 25 percent of GDP. It is also one of the reasons why we think the central bank is likely to tread cautiously when it starts to ease monetary policy later this year.”

The country’s current account hit a deficit of $6.471 billion in the first three quarters of 2018, a reversal from the $968-million surplus posted a year ago. Full-year current account data is scheduled to be released today, March 15.

Credit belongs to : www.manilatimes.net

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