ON Thursday, the Bangko Sentral ng Pilipinas reported that remittances from overseas Filipino workers in August were about $20 million less than they were in the same month a year ago, the first time since 2003 that cash remittances have actually declined.
Even according to the broader statistic of “personal remittances” – a somewhat dubious measure invented in 2012 that includes, among other things, compensation for sea-based workers and short-term land-based contracts – the same $20 million retraction was recorded.
The amount of $20 million (about P917 million at the current exchange rate) is a considerable sum, but relative to the total amount of remittances received during the month of August—$2.04 billion, or $2.26 billion according to the more generous definition—it is not cause for panic, being a drop of a little less than one percent. It is, however, cause for at least some mild alarm.
The BSP ascribed the downturn to the weakness of other currencies against the US dollar, citing in particular the Canadian dollar, the euro, and the Japanese yen. The BSP explained that a strong US dollar means that a constant sum in another currency is worth less in dollar terms—which is true—and that it might encourage some OFWs to hold some of their earnings in the hope that the exchange rate would be more favorable later, which is probably also true. The message the BSP is obviously trying to relay is that the downturn in remittances is a temporary condition caused by external effects, and not a sign of some other weakness in the country’s labor export sector. To support that point of view, the BSP pointed out that deployment of overseas workers remains steady—about 584,000 job orders processed through the first eight months of the year.
Things may not be that simple, however. As the chart, which shows the 10-year exchange rates of the three currencies mentioned by the BSP, illustrates, even though the exchange rates are currently at a decade high, they have fluctuated considerably over the years. Nevertheless, remittance growth, as well as growth in the number of ‘remitters,’ has always been positive; the implication is that remittances are, in a macro sense, reasonably immune to exchange-rate fluctuations, or at least have been until now.
There are a couple of possible explanations for this, neither of them very encouraging. If the BSP is essentially correct in its assessment—and it very well could be—we may have just discovered the exchange rate levels at which remittances will produce diminishing returns; if that is the case, the implication is that OFW policy—which for years has essentially focused on sending as many workers overseas as possible—will have to be rethought to maintain the supply of OFWs below a certain threshold, with all that implies for the economic prospects of tens of thousands of Filipino families.
Another possibility is that the decline in remittances is an indicator of negative wage growth; that in spite of a more or less constant increase in the number of OFWs, overall OFW earnings are declining. And again, that suggests that OFW deployment policy requires some limitations be imposed, in order to maximize the overall economic gain from remittances. What is most worrisome in all this is that those two explanations do not have to be mutually exclusive; both problems could be occurring at the same time.
While that potentially presents a difficult puzzle for economic policymakers, we cannot forget that the real consequences are felt much closer to the ground —among families with few gainful opportunities here at home, and who may now be seeing their alternatives elsewhere diminishing.