Overseas remittances substantially boost household spending and are dependent on a host of factors that include the exchange rate, unemployment and transfer costs, Bangko Sentral ng Pilipinas (BSP) researchers said.
In a discussion paper, researchers Veronica Bayangos and Cymon Kayle Lubangco noted that OFW remittances have long been a vital pillar of the Philippine economy, supporting household spending and foreign currency reserves, especially in economically challenging periods.
OFW households, they said, prioritize consumption over savings and investments. Migration status and educational attainment also influence where the money is used.
Immediate consumption also tends toward non-food, and “largely welfare-inducing” items such as health, education and housing, while allocations for productive consumption goods “shows that remittances are treated as transitory income.”
“Our estimates reveal that receipt of cash remittances is positively driven by the number of OFWs abroad, unemployment rate, and the depreciation of the peso against the dollar,” the researchers said.
“However, high regional wages and bank financial transaction costs reduce remittance receipts.”
Remittances may cushion labor market shocks in the short term, but OFW households are also at risk if economic conditions in host countries also worsen, the researchers noted.
Financial development, meanwhile, was said to help raise remittances, but only if accompanied by increased financial inclusion and lower transaction costs.
An apparent decline in cash remittances, the BSP researchers said, can be attributed to a rise in the cost of sending money from abroad to the country.
As of the first quarter of 2024, 96.6 percent of surveyed OFWs families said they were using remittances for food and household needs. Allocations for medical expenses and home purchases also rose compared to the fourth quarter of 2023.
On the other hand, the proportion of households that used remittances for education, savings, consumer durables, debt payments, motor vehicle purchase and investments fell, the researchers noted.
Remittances have been relatively stable at 8.0 to 9.0 percent of nominal gross domestic product since 2017, they said, while cash remittances are slightly lower at 7.0 to 8.0 percent.
Cumulative growth for both types has trended downward, the researchers noted.
The US remained the largest source of remittances as of last year. The Philippines was among the top five five recipient countries at $40 billion, outpaced only by India ($125 billion), Mexico ($67 billion) and China ($50 billion).
The BSP researchers noted that while remittances are expected to grow by 3.1 percent this year, this could change due to an escalation in the US-Ukraine war and conflicts in the Middle Ease, volatile oil prices and exchange rates, and greater-than expected economic slowdowns.
A substantial decline would have an impact at both the macroeconomic and household levels, they said, with families likely to face reduced capabilities to meet education and healthcare needs.
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