By Des Ferriols Updated June 14, 2009 12:00 AM [ philstar.com ]
MANILA, Philippines – Overseas Filipino workers (OFWs) have been known to favor saving portions of their earnings but lately, the central bank has noted more of them have also begun making investments.
Every year, about $16 billion worth of foreign exchange is sent home by Filipinos working abroad and through the decades, the Bangko Sentral ng Pilipinas (BSP) said these inflows have supported private spending.
Consumer spending, according to BSP deputy governor Diwa Guinigundo, accounted for over 60 percent of the country’s economic production, making overseas workers the strongest economic drivers.
But Guinigundo said overseas Filipinos have only recently begun to develop the financial maturity for strategic spending – apportioning their earnings to consumption, savings and investments.
In the latest Consumer Expectations Survey conducted by the BSP, it was shown that investments made by families of overseas Filipinos have increased significantly in the second quarter of the year.
On the whole, the survey results indicated that OFW households utilized their remittances primarily for food, education, medical expenses, debt payments, and savings in the second quarter of the year.
Out of the OFW households surveyed, the quarterly survey indicated that 96.2 percent of these households spent part of their remittances for food and other household needs.
On the other hand, 68.2 percent of the OFW households used their remittances for education expenses, and more than half (51.1 percent) allotted remittances for debt payments.
The percentage of OFW households that utilized remittances to purchase consumer durables and motor vehicles increased to 25.9 percent and seven percent, respectively.
Meanwhile, the survey noted a broadly steady percentage of OFW households at 10.8 percent (from 11.2 percent in the previous quarter) allocating part of their remittances to amortization or full payment for houses purchased.
The percentage of households that allotted portions of remittances to savings dropped slightly to 38.3 percent (from 40.0 percent in the first quarter) but the survey showed this was not necessarily bad news.
According to the survey, the percentage that devoted a part of the remittances to investment increased appreciably to 8.3 percent in the second quarter from 5.9 percent in the first quarter.
Guinigundo explained that savings and investments increase the pool of resources available to both households and corporate borrowers for their credit needs. “That helps sustain economic activity,” he said.
Guinigundo pointed out that the country’s savings rate was much lower compared to other countries in the region although he said the national savings rate also included public savings.
“Public savings in turn depend on the government’s ability to collect taxes and improve its fiscal position,” Guinigundo said. “All other things considered, there is further scope for higher level of savings.”
The BSP, however, is wary of encouraging savings at a time when the economy would need a sustained increase in spending to support activities that would cushion the impact of the global slowdown.
“Having the scope for higher savings does not mean of course that we should discourage consumption expenditure in the economy,” Guinigundo said. “Consumption sustains higher level of economic activity.”
Guinigundo added consumption expenditure could also be supported by higher level of savings and investment that in the future would give the consumer more and higher stream of future income.
According to the BSP, the shift was likely the result of growing pessimism over the country’s economic prospects which compelled families to save and invest rather than spend on consumables.