Philippines: bad news for remittances

Benigno Aquino III, the popular Philippine president, should begin to worry about his country’s disappointing GDP growth of 3.4 per cent in the quarter ending June, among the lowest in the region. And it’s not just because the economy has progressively slowed down in the past four quarters that he’s been in power.

Rather, the Philippines is losing one of its main growth drivers: remittances from Filipino contractual workers abroad that boost domestic spending.

A decline in remittances is just as bad news for Filipino businesses as it is for the economy. Money from abroad, estimated at about a tenth of GDP, helps keep people satisfied and local businesses buoyant in spite of low incomes and lack of jobs.

Latest numbers released by the National Statistics Coordination Board on Wednesday showed that inflation-adjusted compensation of overseas Filipino workers fell by 2.8 per cent in peso terms in the first half of the year from a year ago.

That’s a big reversal of the long-term trend. In the past five years, overseas Filipino workers’ earnings rose by an average of 10.3 per cent each year, helping the Philippine economy coast along amid global economic shocks. Falling earnings of overseas Filipinos will likely hurt consumer spending that makes up more than half of the country’s GDP.

In US dollar terms, incomes of Filipinos working abroad are still rising but more slowly than in the past. In large part, this is due to a slowdown in deployments to rich countries grappling with the risk of another recession, and political troubles in the Middle East and Africa. What little growth there is cannot keep pace with the strong peso, which appreciated against the US dollar by 5.4 per cent in the first half of the year. It’s also been further whittled down by rising domestic inflation which averaged 4.7 per cent in the first half of the year.

With the global economy remaining weak and political troubles continuing in the Middle East, sending more and more Filipinos to seek jobs in other countries is not as productive as before. It is time Aquino and his administration paid serious attention to creating more domestic jobs for his countrymen who are growing in number by 2.04 per cent a year. His four-day state visit to China on a mission to seek more investments and trade with the world’s No. 2 economy may well prove timely.
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By: Roel Landingin
Source: FT.com – beyondbrics, Aug. 31, 2011
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