Remittances from overseas Filipino workers (OFWs) continue to support consumption-driven growth in the country, but are still at risk this year and next from slowing Middle East economies, debt watcher Fitch Ratings said.
In a report, it said worker remittances continued to be a stable source of foreign currency in most of Asia in 2015, while dropping significantly in some other countries, especially in Europe and central Asia, partly due to lower outflows from Russia.
“Remittance inflows in the Philippines, Sri Lanka, Bangladesh, Pakistan and Vietnam are particularly strong relative to the size of their economies,” Fitch said.
The credit ratings agency pointed out that the abundance of cheap, unskilled labor in these countries is turned into a comparative advantage as higher income levels associated with the foreign-currency receipts partly help drive domestic consumption.
Despite this, it said, slowing growth and capital spending among oil producers in the Middle East may reduce employment opportunities for foreign workers from Asian countries, in construction for instance.
Fitch-rated Gulf Cooperation Council countries are expected to reduce their public capital expenditure by 16 percent in 2016 and 6 percent in 2017, after a 15 percent drop in 2015, led by Saudi Arabia, Fitch noted.
The warning was similar to one issued earlier this month by Moody’s Investor Service, which said that persistent lower oil prices in the Gulf Cooperation Council (GCC) countries would cause a decline in remittances, or result in much slower remittance growth.
Nevertheless, Fitch acknowledged that the risk of lower remittances from lower demand for foreign workers in the Middle East has so far not materialized, which was also reflected in the Philippines’ 9 percent remittance growth in February, the fastest expansion in eight months.
In terms of ratings impact, Fitch said remittances as a relatively stable source of foreign-currency receipts–as illustrated by the resilience of inflows during the 2007-2008 global financial crisis–generally strengthens the external balances of the receiving country.
The central bank said earlier this week that remittances have been a dependable source of strength for the Philippine economy.
In the last 10 years, from 2005 to 2015, OFWs have sent over $228 billion in remittances, personal and cash, to the country.
In 2015, more than 10 million OFWs sent over $28.5 billion in personal remittances, higher by 4.4 percent than the 2014 figure of over $27.3 billion, and equivalent to 9.8 percent of gross domestic product.