Storm damages seen to boost remittances in Oct
By Karen Flores, abs-cbnNEWS.com | 11/04/2009 6:22 PM
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MANILA - If there is one good thing that the recent storms brought to the economy, it is the expected strong rise in remittance inflows.
Just like the Bangko Sentral ng Pilipinas (BSP), the World Bank is looking at a 4% growth in remittances this year. However, the multilateral lender said the amount has upside potential as overseas Filipino workers (OFW) send more monetary assistance to families whose properties were devastated by typhoons "Ondoy" and "Pepeng" (international code names Ketsana and Parma), which hit the country in late September and early October.
Citing a study, the World Bank said remittances act as an "insurance to households" affected by natural disasters. Specifically, the multilateral lender said about 60% of household income lost through natural calamities such as storms is replaced by remittances.
"As households affected by typhoon Ondoy constitute a large share of remittances flowing into the country, a strong increase in remittance inflows in and around the month of October is expected," the World Bank said in its Philippine Quarterly Update released Wednesday.
The BSP is set to release remittance data for September next week. October data, meanwhile, are scheduled to be released next month.
Historically, OFWs send more money to their families back home when they need it the most. In June, for instance, remittances reached a record $1.498 billion amid fears that rich host countries would slash jobs and prioritize their own citizens in employment generation efforts.
June is one of the traditionally strong months for remittances as OFWs send home more money to their families to pay for tuition fees and other supplies needed for school. Inflows are also usually more robust in December as migrant workers send money to their loved ones to celebrate the Christmas season.
Given the expected rise in remittances, the World Bank said privatre consumption is likely to remain buoyant with a 2.1% growth this year. At present, money sent home by OFWs account for a large share of disposable income, especially of the middle and upper-income households.
"The remittance impact on private consumption is nonetheless not expected to decrease as the marginal propensity to consume out of remittance inflows is expected to increase sharply compared to the first half of 2009," the World Bank said.
During the second quarter, the bank said private consumption accounted for more than 70% of the country's gross domestic product (GDP).
Fading luster
Just last week, Development Bank of the Philippines (DBP) President and Chief Executive Officer Reynaldo David said remittances may no longer be one of the country's main growth drivers in the next decade (Read: 'Remittance-driven economy may be over soon').
According to David, a number of OFWs are likely to be integrated in the domestic society of their host countries in the next 12 years either by applying for citizenship or through marrying someone from abroad. "Since they're citizens already, remittances will probably start to diminish," he told reporters.
Given this, David suggested developing potential industries such as the business process outsourcing (BPO) and medical tourism sectors. He also encouraged banks to prepare OFWs for future trends by helping them start their businesses back home.
David shared the views of 3 University of the Philippines (UP) professors, who said that a remittance-driven economy is "inherently limited and self-undermining." In a study, the UP professors said skills demanded in OFWs are usually not fitted to external markets and are difficult to deepen domestically.
Since it may not be sustainable in the long run, the report called on the government to make the most out of the current setup by mitigating any unwarranted rise in the Philippine peso and to invest more on infrastructure and education, sectors believed to be "safe bets to focus on once the remittance-driven economy is over."
Storm damage
Excluding remittances, almost all aspects of the economy have been badly hit by the twin typhoons. According to the World Bank, "Ondoy" and "Pepeng" have shaved off as much as 0.4% from the country's full-year GDP.
The multilateral lender said the estimate took into account the large share of Metro Manila in the country's total GDP, and the storms' impact on agriculture as central and northern Luzon contribute to over half the country's rice production.
Specifically, the World Bank said several companies and small enterprises in Manila were severely affected as a large number of employees were unable to report for work due to strong floods.
"A large number of small businesses was significantly hit, including the traditional sari-sari family stores," the World Bank said.
"Industry could be more significantly affected as some plants have been flooded in Manila...The services sector is expected to be moderately and temporarily impacted, with trade, transportation, and personal services most affected," it added.
On the demand side, the World Bank said consumption is seen to slow down temporarily due to "negative wealth and possibly income effects."
"While the poor have been disproportionately hit by the floods, middle-class households seem to have been significantly affected and have lost cars and expensive household goods that could take time to be replaced," the World Bank said.
Meanwhile, the World Bank said the storms' impact on the fiscal balance could also be noticeable due to higher spending needs and weaknesses in revenues. In particular, the bank noted direct costs such as infrastructure damages estimated at P9.3 billion, and P0.4 billion in emergency relief and assistance to affected families.
"Indirect costs are potentially significantly higher but yet unknown," the World Bank said. By Karen Flores, abs-cbnNEWS.com
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