How bad would it be for the economy of the Philippines if remittances were to dry up? Such a scenario may be far off but an analysis of central bank data suggests both the composition and the total value of payments sent home by Filipino workers overseas are undergoing fundamental change. If recent trends continue, the domestic economy will have to make up for significant revenues lost from abroad.
More than 10 million Filipinos work overseas in a wide range of jobs from seamen to engineers, domestic workers to nurses. Last year, remittances were worth $24.3 billion. That is about a tenth of gross domestic product in itself, and a vital driver of the consumer spending that accounts for two-thirds of the Philippines' economic output.
The value of remittances is still growing but last year's growth, of 5.9 percent, was the weakest in five years.
Crucially, there are signs of significant change in the employment of Filipinos in the U.S., long their most lucrative overseas jobs market and home to about 3.5 million expat Filipinos. Remittances from the U.S. were worth $10.4 billion last year, or 42.6 percent of the total. That was up 4.7 percent on 2013, a much slower pace of growth than in previous years. The share of total remittances sent home from the U.S. has fallen from almost 48 percent in 2008.
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A potentially more significant change is taking place in the number of "deployed workers" — those with new or renewed overseas contracts, of which there were 1.84 million in 2013 (the most recent year for which figures are available).
The U.S. was home to just 3,306 of such workers in 2013 and the number appears to be in decline — being small it fluctuates strongly, but it fell by an average of 2 percent a year between 2011 and 2013. If opportunities for new employment continue to fall, so too at some point will the numbers of those employed.
For now, the slowdown in the growth of remittances from the US is being offset by those from a rising number of Filipino workers in the fast-growing economies of the Middle East and Asia. The Middle East accounted for 22 percent of remittances in 2014, up from 16 percent in 2011, while Asia's share rose to 14.6 percent last year from 12.8 percent in 2011.
But remittances per worker in the US are about double those from the Middle East and Asia. If the shift from west to east continues, it will pose a threat to overall volumes and, potentially, to consumer spending and economic growth at home.
The data do seem to be changing quickly. The Middle East accounted for 47 percent of all deployed overseas Filipino workers in 2013, a number that grew by more than 8 percent a year over the previous three years. In Asia, with 26 percent of the total, the number was growing at more than 20 percent a year.
Taken together, this should be enough to set alarm bells ringing. But, thankfully, there are encouraging signs from the domestic economy. Its thriving business process outsourcing (BPO) sector — which provides back operations such as call centers to global businesses — now rivals remittances as the country's biggest single revenue generator, encouraging large numbers of workers who might have sought opportunities abroad to stay at home.
Philippine BPO revenues could reach $25.5 billion in 2016, according to estimates by FT Confidential Research, a Financial Times research service. The sector's rapid emergence as a key driver of consumer spending should counterbalance any further slowdown in remittance growth over the longer term. It may even persuade some Filipinos to return home.