Remittances, BPO revenues to continue driving economy – Citi

MANILA, Philippines - Financial giant Citi expects remittances and rising revenues of the business process outsourcing (BPO) sector to provide a boost to the country’s foreign exchange reserves, which fell sharply in January on the back of debt servicing.

In a research note, Citi economist Jun Trinidad said the robust inflows of remittances from Filipinos abroad along with gains of the IT-BPO sector will continue to support the country’s gross international reserves.

“Moving forward, remittances/BPO proceeds would be recurring in nature but not (the) sizeable net outflows from external debt repayments, unwinding portfolio positions, and others,” Trinidad said.

The economist made the comment following the steep decline in the country’s GIR in January to $78.939 billion from $83.187 billion in December.

“GIR stock fell in 2013 by $644 million despite having a strong combination of OFW (overseas Filipino workers) remittance flows and IT-BPO revenues. In January, GIR fell by $4.25 billion – a record monthly drop,” Trinidad said.

Cash remittances amounted to $22.76 billion last year, up 6.4 percent from $21.391 billion in 2012. The 2013 figure was the highest annual record for remittances based on the central bank’s record.

IT-BPO revenues, meanwhile, grew 17 percent to $15.5 billion in 2013, on track the industry’s target of achieving $20 billion in revenues by 2016.

“If the remittance and BPO flows are assumed to be recurring, GIR’s recent compression should have been mitigated. But GIR surprised on the downside to suggest strong net outflows other than the reporter portfolio net outflows,” Trinidad said.

“Payment of external liabilities among the banks and non-banks may have accelerated particularly during weak  peso episodes that implied added pressure, although external debt payments data have yet to be reported,” he noted.

But the net outflows are not seen to be a “recurring” theme, Trinidad said. Thus the country should see a lift in foreign exchange reserves soon.