Des Ferriols
Philippine Star

Given the steady demand for labor especially in the Middle East, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said he expected remittances from overseas Filipino workers (OFWs) to grow more than originally projected this year.

Because of ever increasing deployment of workers, the BSP had projected that OFW remittances would reach $16 billion this year, 10 percent more than last year’s remittances.

Tetangco said the BSP’s projections indicate that the increase in remittances could be higher than 10 percent. OFW inflows remain the country’s sole source of foreign exchange that have been largely unaffected by the global economic slowdown.

“First the demand for our workers is still there and we are sending people who are higher skilled and higher paid than previously,” Tetangco said.

Even with the anticipated slowdown in major economies, the country’s traditional export market for labor in oil-rich countries has been expanding dramatically since they were raking in profits from soaring oil prices.

In June this year, the BSP reported that the monthly remittance reached the highest level since the central bank started counting OFW inflows in 1989. Workers abroad sent home $1.5 billion in that single month.

As a result, OFW remittances for the first six months of the year reached $8.2 billion.

The Philippines started exporting unskilled workers in the 1970s to work in construction and domestic labor markets abroad. In recent years, the government has shifted its focus to training workers for higher-paid jobs that the domestic economy is otherwise unable to absorb.

As a result, workers in the health and medical sector, industry and information technology are trained locally and then exported abroad to generate foreign exchange that support domestic consumption and prop up the economy.

The government has been criticized by credit rating agencies for making a virtue of its inability to generate jobs but remittances have become critical to sustaining the country’s economic growth, with private consumption leading public spending as economic stimulants.

Data from the BSP showed that remittances from OFWs coursed through banks grew year-on-year by 30 percent in June 2008, the highest level since the BSP started tracking remittances.

Since 1989, the BSP said it began classifying foreign exchange (FX) inflows from overseas workers as a separate category in the BSP FX statistical monitoring system.

Remittances have been consistently going over the $1-billion level for nearly a year and the June inflows brought the six-month remittance level higher by 17.2 percent compared with last year’s first semester total.

Tetangco said the sustained rise in the number of deployed Filipino workers was behind the robust remittance inflows and he expected this trend to continue.

Quoting preliminary data from the Philippine Overseas Employment Administration (POEA), Tetangco said there was a 33.5-percent increase in the deployment of workers abroad in the first half of the year.

This year, over 640,000 workers left the country to work abroad, compared with 479,725 over the same period last year, as the government opened bilateral talks with labor-importing countries to open up more employment for Filipinos.

Tetangco said the level of remittances also drew strong support from the expanded presence of local banks and non-bank remittance agents in countries with large concentration of OFs.

To date, the U.S.A, Saudi Arabia, the U.K., Italy, the United Arab Emirates, Canada, Japan, Singapore, and Hong Kong remain to be the major sources of remittances.

The BSP expected remittances to buoy the country’s forex reserves this year, despite heavy portfolio investment outflows, a large trade deficit and lacklustre foreign direct investments.

Tetangco said the BSP was maintaining a projected GIR level of $36.5 – $37 billion, adding that net outflows in portfolio investments were expected to be tempered by stronger than expected OF remittances.

Although reaching record highs this year, the BOP position has been under significant stress from the surges in oil prices that eroded the reserves.

The country’s balance of payments surplus could dip even lower than the projected $2.5 billion level this year and monetary officials are re-examining their numbers to determine just how low.

The balance of payments (BOP) is the sum of the country’s transactions with the rest of the world paid out of the foreign exchange reserves. Last year, the country was in surplus position recorded at $8.6 billion.

This year, however, sources from the Monetary Board said the BOP position could be even lower than latest projections, mainly due to huge outflows of foreign portfolio investments.

Sources said the Monetary Board has asked the BSP to review its projections because they suspected the BOP surplus was being eroded faster than expected.

Of particular concern was the capital account where foreign portfolio investments were booked as they enter and leave the country.