Sharper drop reveals remittances meet their match in coronavirus

Sharper drop reveals remittances meet their match in coronavirus
Government personnel assist returning OFWs, as they register their personal details upon arrival at the Laguindingan Airport in Misamis Oriental.
Gerry Lee Gorit

MANILA, Philippines — The resilient cash remittances appear to have met their match on the coronavirus pandemic, with the central bank penciling in a deeper slump this year as more migrant workers get displaced.

Cash remittances coursed through banks would likely drop 5% year-on-year to $28.6 billion from last year’s record-high of $30.1 billion, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.

If realized, the plunge would mark remittances’ worst performance since plummeting 18.3% in the aftermath of the Asian financial crisis in 1999. A 4% bounce-back to $28.6 billion is seen for 2021. 

Before the pandemic struck, remittances rose 4.6% on-year to $5 billion as of February, the latest period on which data is available. “This is due mainly to large repatriation of workers and major economic disruptions in host countries,” BSP Governor Benjamin Diokno said in a Viber message.

Diokno recognized that “despite being resilient in the past crises,” remittances now appear set for a brutal damage from the pandemic that has forced cities to shut down. As of last month, labor department data showed around 302,000 Filipinos were displaced by the virus and lockdowns meant to stem its spread.

There are no signs the return of workers is abating. The government estimates half a million migrant workers may lose jobs, although not all of them may decide to go home. Another 42,000 overseas Filipino workers (OFWs) are set to come home from June to July on top of 28,589 already repatriated as of May 21.

Sought for comment, Ruben Carlo Asuncion, chief economist of UnionBank of the Philippines, said it is probable that “remittance inflows may actually suffer more than what government expects” given the high number of seafarers who were threw out of their jobs.

For Emilio Neri Jr., lead economist at Bank of the Philippine Islands, the sharper decline expected from cash remittances mean policymakers are throwing in the towel for any recovery in the second half of the year. For 2021, a rebound would “depend on whether there is already a vaccine” against coronavirus.

“A large portion of our OFW population are in hotel, entertainment and restaurant business which were heavily affected by the pandemic. You cannot expect them to transition suddenly to other sectors like IT,” Neri said in an online exchange.

BPO earnings to grow 2%

Speaking of IT, while the outlook is bleak for remittances, the business process outsourcing (BPO) is likely to sustain its momentum. BSP sees BPO earnings growing 2% this year and 4% by 2021, although in absolute terms, dollars they funnel to the economy will remain below that of remittances at $22.8 billion by next year.

“It can be really resilient. US companies will try to cut expenses via outsourcing so that they can cushion the collapse of their profits,” Neri said.

Asuncion agreed. “BPOs are somehow resilient in this pandemic and may still have positive growth,” he said in a separate online exchange.

Other dollar inflows are seen to be not so lucky. According to BSP forecasts, foreign direct investments would mark its third straight year of decline in 2020 to $4.1 billion net inflow, down from $7.6 billion in 2019. A slight recovery to $6.5 billion is set for 2021. Foreign portfolio inflows would amount to $2.4 billion this year, down from $5.6 billion last year.

Tourist receipts would suffer the most greatly affected by existing travel prohibitions. Tourism earnings would likely plunge 56.9% on-year in 2020 before growing 15% next year.   — Prinz Magtulis

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