Remittances to Philippines remain subdued after marked slowdown

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  • Half of remittance recipients expected no change in the amount of money they receive in the next six months.
  • Basic necessities like food and housing were the top spending priorities of remittance recipients.
  • Nearly a fifth of Filipino households surveyed by FT Confidential Research received monthly remittances from a family member abroad, more than the 10 per cent of respondents in the central bank’s quarterly consumer survey.

The outlook for remittance growth in the Philippines remains subdued, reflecting a structural shift in migration patterns and a drop in demand for workers in the Middle East due to the weak oil price. FTCR data indicate that the pace of remittance growth will remain near last year’s levels, suggesting stabilisation after a marked slowdown.


 

Little or no remittance growth expected

Our survey found that most recipients of remittances expected little or no change in the value of such transfers in the next six months. Notably, nearly a fifth of our 1,000 urban middle-class respondents said they received remittances, compared with just 10 per cent in the central bank’s quarterly consumer survey.

This is more in line with official data, which show that a quarter of households in the Philippines receive remittances, which make up about a tenth of GDP and are an important contributor to consumption (see chart). FTCR calculations show that a 1 per cent increase in remittances results in a 0.1-0.3 per cent rise in consumption.

Just under half of the remittance recipients we surveyed expected cash support from overseas to “stay the same”, while 20.1 per cent foresaw an increase of 1-10 per cent. Few expected a decline (see chart).

Fewer Filipinos are heading to the US due to visa restrictions and a tight job market, and are instead seeking work in Asia. The share of remittances from the US declined sharply to 31.2 per cent last year, from more than 40 per cent in previous years. Meanwhile, remittances from Asia now account for nearly a fifth of the total, with the share from the Middle East rising to 27 per cent in 2015.

Remittances made by Filipino workers in the US are typically greater than those from the Middle East or Asia.

As such, we expect cash remittances to grow at roughly the same pace in 2016 as they did last year. Remittances rose about 4.6 per cent in 2015 to $25.8bn.

For the first three months of 2016, remittances rose only 4.4 per cent to $6.6bn, the Philippine central bank reported. This was less than half the pace of growth seen in the first quarter of 2015, when remittances jumped 9.8 per cent to $6.3bn. Remittances grew at an average rate of 7.3 per cent from 2010 to 2014.

Remittances a blessing, if sometimes a mixed one

Remittances support the peso and help sustain a current account surplus but put upward pressure on inflation. The central bank finds it harder to control demand-pull inflation as remittances circumvent its attempts to control domestic credit supply through interest rate policy.

According to research by the central bank, remittances have been more stable than foreign direct investment, which has typically been low in the Philippines, but can also increase the risk of external shocks. For example, the impact of the financial crisis in 2007 was amplified in developing countries such as the Philippines because remittances slowed.

Individual remittances small but important

Most remittances are modestly sized. A little over a quarter of remittance-receiving households said they received $100 or less each month. Those receiving $101-200 accounted for 16.6 per cent, while those receiving $201-300 comprised a further 12.6 per cent (see chart).

The importance of these small contributions was highlighted by the fact that a large chunk of remittance recipients said they used them to buy basic necessities. We asked our respondents to choose up to two consumer categories on which they spend most of their cash remittances. Just over 47 per cent of recipients said they spent the money on housing and utilities, while 46.2 per cent bought food and non-alcoholic drinks. Education and healthcare were also frequently paid for with remittance money (see chart).

Few said they spent income from transfers on alcohol and tobacco, though cultural taboos make it unlikely that respondents would admit to spending on such items.

Source: Financial Times

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