Investment in human capital must be sustained to boost remittance inflows, but given volatility in the global economy, the Department of Finance (DOF) on Wednesday stressed the need for the country to step up the development of alternative sources of income such as the business process outsourcing (BPO) industry.
“If domestic consumption is the driver of the Philippine economy, then its fuel is remittances. The Philippine government should ensure its continued inflow through investing in human capital development. Given the volatility of the world economy, alternative sources of income such as the BPO industry should be strengthened,” the Finance department said in its latest economic bulletin.
Remittances in April reached $2.213 billion, boosting the country’s year-to-date remittance level to $8.67 billion, up 3.1 percent from a year earlier.
“[Remittances from] Saudi Arabia and UAE [United Arab Emirates] exhibit negative growth rates, however, remittances from the Middle East still exhibit double-digit growth rates, and have the greatest contribution to growth despite fluctuating oil prices,” it said.
DOF data showed that remittances from the Middle East grew 13.9 percent to $2.43 billion in the January to April period, up from $2.13 billion a year earlier.
Details of the figures show inflows from Saudi Arabia and UAE fell by 8.1 percent and 3.2 percent, respectively, in the first four months of 2016, while other inflows from other Middle East countries surged 78.3 percent.
“These countries still have enough savings to spur regular economic activity,” it said.
Meanwhile, traditional destinations like the Americas and Europe (with the exception of Germany and Switzerland) show negative growth, while Asia exhibited slow but positive growth.
The Americas exhibited a 1-percent decline while Europe fell 6 percent. Remittances from Asia increased by 3.8 percent.
“Miscellaneous countries, e.g., Other Asia, Other Americas, Other Oceania and Other Middle Eastern Countries (excluding Other Europe) show double-digit increases. Africa also grew 118.4 percent,” it added.
The finance department said this reflects greater dispersion of overseas Filipino workers who are shifting toward emerging, fast-growing labor markets.
Strengthen other sources of income
“Given the volatility of the world economy, alternative sources of income such as the BPO industry should be strengthened,” it said.
In particular, the DOF said the exit of the United Kingdom (UK) in the European Union through a referendum or “Brexit” has introduced financial and currency volatilities into the global economy, making the sailing a little rough for the Philippines.
“But the country, owing to its good macroeconomic fundamentals, is going to sail all right, Brexit headwinds notwithstanding,” it said.
The country’s current fiscal position is best described as healthy, the agency said, stressing that national government debt is largely peso-denominated, minimizing the adverse impact on the government and consequently the rest of the economy from exchange rate risks that may ensue due to Brexit.
It said fiscal discipline has also kept the deficit at low levels, pointing out that “the country is in a fiscal position for a more expansionary fiscal policy, not for stimulating consumption, however, as in the case of advanced economies in the aftermath of the 2008/9 GFC [global financial crisis], but for investment in both physical and human capital.”
The DOF also noted the country’s external position is strong with regards to possible Brexit effects, with only a minimal portion of OFW remittances and BPO revenues originating from the UK.