Tuesday, July 7, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]
BY PAOLO LUIS G. MONTECILLO, Reporter
GLOBAL DEBT WATCHER Standard & Poor’s (S&P) expects overseas Filipino worker (OFW) remittances to grow this year even as multilateral institutions anticipate a contraction for this key prop of the Philippine economy.
S&P, which last week affirmed its below investment grade ratings for the country along with a "stable" outlook, said the government’s zero growth forecast for OFW remittances would be the "worst case scenario."
"We do not envisage a contraction in remittance flows this year," S&P senior analyst Agost Benard said in an e-mail to BusinessWorld.
Remittances continued to grow in the first four months of the year. Money sent home by OFWs totalled $5.5 billion in the January to April period, up 2.6% from the same period last year.
"[N]umbers at the beginning of the year indicated that the deployment of new workers is still growing at a fast pace," Mr. Benard said.
"Hence we believe that flat growth of remittances for the year as a whole is the worst case scenario, and that based on current trends, a contraction is unlikely."
OFW remittances hit a record high of $16.4 billion last year, up 13.7% from 2007. Since the start of 2009, however, growth has slowed to single digits.
The Bangko Sentral ng Pilipinas officially expects zero growth in remittances this year as OFWs suffer pay cuts or are laid off due to the global downturn Last week, however, the central bank said its forecast could be too "conservative" but did not offer a revision.
The world financial crisis has prompted the International Monetary Fund and the World Bank to forecast a 4% contraction in remittances.
Given the BSP’s apparent optimism, ATR KimEng economist Luz L. Lorenzo yesterday said "If even the BSP says their own estimates are conservative, then I guess things are pointing to [growth]."
She forecast a 6% uptick, saying many OFWs work in the health care and education sectors which are relatively resilient.
Another local analyst said growth would at the very least be sustained for the rest of the year given signs the global slowdown had reached bottom.
"More people are convinced that we have reached the bottom," Rizal Commercial Banking Corp. Senior Vice-President Marcelo E. Ayes said.
"OFWs are also employed in many countries and not just the US," he said, noting that slowdowns in individual countries will not likely dent the country’s stock of migrant workers.
OFW remittances made up about a tenth of gross domestic product last year. Analysts have said a contraction could help tip the country into a recession this year.
Remittances are also a large source of foreign exchange, which helps stabilize and strengthen the peso.
The economy grew by just 0.4% in the first quarter from a year earlier. Seasonally adjusted, it contracted by 2.3% from the fourth quarter of 2008, prompting some officials to warn that the country was teetering on the brink of a recession.
The result prompted the government to recently revise its macroeconomic forecasts: it now expects the country to grow by just 0.8-1.8%, instead of 3.1-4.1% previously. The zero remittance growth forecast, however, was maintained.
S&P has also cut its growth forecast for the Philippines, to 1-1.5% from 1.5-2% previously.
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