Angelo Taningco
Economist, Treasury Group

Overseas Filipinos (OF) remittances grew marginally in Q1 as its lower inflows from the Middle East—amid repatriation of OF workers from the region and deployment ban to Kuwait—almost eclipsed relatively sharp increases from certain host countries (ex. US, Canada, Germany, Japan, Malaysia). We contend that its anemic growth coupled with a sharp widening in the trade-in-goods deficit led the balance of payments (BOP) deficit to succumbed to a five-quarter high in Q1 and in turn led the peso to depreciate the most amongst Asian currencies. On the other hand, our estimate of the OF cash remittance-to-GDP ratio portrays a relatively high share in Q1, suggesting that households may have likely depended more on remittances for spending purposes, taking advantage of the peso’s weakness and to combat accelerating inflation. We expect OF remittances to rebound in subsequent months as the high base effects fade, thus, retaining our full-year 2018’s 5.0% growth forecast.

OF cash remittances growth slowed to 0.8% yoy in Jan-Mar from 7.1% in Jan-Feb due to its March’s 9.8% drop, which the BSP attributed to lesser banking days amid the Holy Week as well as repatriation of OF workers from the Middle East. We expect it to rebound in April and in subsequent months, however, as the high base effect fades. Meanwhile, its Q1 total of $7.0 billion was eclipsed by the trade-in-goods deficit of $8.7b in the same period; we think the gap between the trade deficit and OF cash remittances was partly responsible for the BOP deficit to widen to $1.2b in Q1, implying that the current account may have likely been in a deficit position as well. We have argued that the BOP deficit was largely responsible for the 4.3% peso depreciation year-to-date through end-Mar, enabling the peso’s weakness to be the sharpest amongst most Asian currencies.

But we also contend that OF cash remittance inflows as a share of GDP rose in Q1; we estimate it to be at 9.3%, which we found to be the highest since Q2 2017 and above the annual averages of previous years. This tells us that households may have likely increased their dependence on remittances for their spending needs, potentially taking advantage of the peso’s weakness and to combat rising inflationary pressures.

Figure: OF Cash Remittances

(percent of GDP)

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