OFW remittances are a major pillar holding up the Philippine economy, and if the remittance figures for January —released this past Monday—are any indication, that pillar has been severely shaken.
Remittances in January, according to the data published by the BSP, totaled $2.011 billion; that was $548 million less than in December 2014, but $4 million or 0.2 percent more than in the previous January.
To its credit, the BSP did not put a lot of effort into spinning the news into something positive and, instead, provided a very matter-of-fact presentation of the numbers, including a few significant labor statistics from the POEA.
The government outside the BSP, of course, did its best to highlight the “growth” in remittances, a message that some of the media was content to pass along undissected. At The Manila Times—and in one or two of our honored rivals’ newsrooms, too, apparently—there is actually no one on the staff who was born yesterday, so we didn’t fall for the “remittances grew” line. Even so, the stories published probably downplayed the implications of January’s remittance figures, which are alarming.
Since 2010, remittances in the December-January period have followed a reasonably consistent pattern: January remittances are always lower than the preceding December, but year after year exhibit a healthy growth rate; over the past five years it has ranged from a low of 6.4 percent to a high of 9.5 percent.
The negative difference between the amount of remittances to the Philippines in January 2015 and December 2014, $548 million, is much larger than the gap a year earlier of $406 million, and the average difference over the past few previous years of about $240 million. The difference in January remittances this year is considerable, but it is not as far off the expected pattern as the year-to-year growth rate.
Here’s the problem: The difference between January’s remittance growth rate and the GDP growth rate over the past five years has ranged from -0.4 percent to 2.9 percent. What makes the paltry 0.2 percent growth in January remittances so alarming is that it suggests economic growth might be much lower this year than anyone anticipates: A rough calculation suggests GDP growth might be closer to 5 percent than the 6-point-something most forecasters are expecting.
Granted, there is a significant amount of uncertainty to that prediction, but if nothing else it ought to alert economic planners to a potential change in their assumptions. Remittances are seasonally affected so month-to-month variations are not an issue, but on a year-on-year basis they should always increase: They will be driven fractionally higher by wage growth (primarily minor upward adjustments from contract to contract for established workers), and driven higher still by expansion of the overseas labor force. And because remittances are measured in dollars, they are not strongly impacted by exchange rates; in any event, the remarkably stable peso, which appreciated by just over P1 to the dollar over all of 2014, minimizes foreign exchange variances.
According to the POEA, the workforce—“workers with processed contracts”—increased by 6.7 percent in 2014, which means at least 160,000 more workers were remitting in January 2015 than in January 2014, which in turn should have resulted in an additional $144 million in remittances based on the multi-year averages. That would have made this January’s remittance growth rate about 7.4 percent; even if only half that potential was realized, it still would have placed the result within or very near the normal range.
One analyst suggested that the addition of three additional banking holidays in January during the visit of Pope Francis might have been to blame for the downturn, but simple math eliminates that cause. In 21 banking days last year, $2.007 billion was remitted; in only 18 banking days this January, $2.011 billion passed through the country’s financial system—about $16 million more per day.
The real cause of the drastic slowdown in remittance growth was the shrinkage of the average monthly per-worker remittance. Based on the POEA figures, in January 2014, OFWs sent home an average of $896.30. This January, that average dropped to $837.91.
That conclusion should be considered informal, but if it even indicates a direction in which circumstances are moving, that is a serious problem, one which a remittance-reliant country like the Philippines in all likelihood literally cannot afford to face.