Nomura sees slump in OFW remittances

MANILA, Philippines -Dollar remittances from overseas Filipino workers (OFWs) may dwindle and this could be a threat to economic growth, Nomura International Ltd. said in a report released during the weekend.

“[W]e worry that OFW remittances could slump by more than expected and that investors start demanding a higher risk premium for holding public debt which at 64 percent of gross domestic product (GDP) is the second highest in the region,” Nomura said.

Nomura said that while the dollar inflows were largely responsible for the country’s two consecutive quarters of growth — 0.4 percent and 1.5 percent in the first and second quarters of the year, respectively, these may decline in the coming quarters.

“The Philippine economy avoided two consecutive quarters of negative growth… The rebound was driven by the large fiscal stimulus; resilience in overseas foreign workers remittances; and a marked decline in inflation to 0.2 percent year-on-year in July and a slower rate of inventory liquidation,” Nomura said in its report.

Remittances from overseas Filipinos reached a record high of $1.5 billion in June, up 3.3 percent from last year, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.

The $1.5 billion recorded in June is slightly higher than the $1.48 billion recorded in May. The latest figures brought cumulative remittances for the first half of the year to $8.5 billion or a 2.9-percent increase from the year ago level.

In 2008, remittances hit $16.4 billion. The BSP expects dollar inflows from overseas Filipinos to reach the same number by yearend.

On the monetary side, Nomura believes the central bank’s rate easing cycle is over and that monetary authorities may increase key policy rates early next year.

Nomura said the BSP may increase rates — currently at four percent for the overnight borrowing rate and six percent for the overnight lending rate — by 25 basis points in the first quarter of next year.

Commenting on the country’s fiscal position, Nomura believes the budget deficit will remain at more than three percent of gross domestic product (GDP). The government has projected a budget deficit ceiling of P250 billion this year or 3.2 percent of GDP, revised from the previous projection of P199 billion or 2.5 percent of GDP.