Projected 20%-30% Drop in OFW Remittances Spells Trouble for Philippine Economy
The global remittances industry is worth $690 billion, and it’s become a lifeline for emerging markets like the Philippines. At home, remittances from overseas Filipino workers (OFWs) is one of the two legs of the Philippine economy, with the other being business process outsourcing (BPOs). But no one is spared by COVID-19’s economic impact as OFWs face the threat of unemployment in their host countries, costing millions of overseas Filipinos their jobs and the economy a source of steady income.
Because of COVID-19, the World Bank projects that the world will experience the sharpest decline of remittances in global history, estimated to be a 20 percent drop. In the worst case scenario, Citigroup Inc. believes the world will lose $100 billion.
In the Philippines, the government predicts a 20 to 30 percent plunge in remittances in 2020—perhaps the first time in a long time that the country hasn’t had year-on-year growth in remittances. OFW remittances account for around 10 percent of the Philippines’ gross domestic product, with remittances rising by four percent in 2019, amounting to $35.2 billion or P1.78 trillion.
In 2018, the Philippines ranked fourth in global remittances, after India, China, and Mexico, all of which will also struggle with decreased remittances in 2020. In 2019, the Philippines had the second highest remittances in East Asia and Pacific Region, and it contributed to 10.9 percent of 2019’s GDP. In 2020, remittances are expected to be substantially lower, causing concern for an economy that relies heavily on OFW remittances.
East Asia Pacific Region remittances in 2019
Countercyclicality and Unemployment
Usually, crises encourage higher remittances. It’s a phenomenon called countercyclicality of remittances that occurs when migrants increase the amount of money they send home to their families going through times of hardship.
In 2003 during the bird flu pandemic and in 2008 during the global financial crisis, remittances back to the Philippines increased. But COVID-19 seems to be the exception as it’s affecting every country in the world—including the countries hosting OFWs, many of which are facing unemployment as businesses around the world struggle to stay afloat.
The World Bank describes the state of migrant workers as “more vulnerable to loss of employment and wages during economic crisis in a host country.” For migrant workers in East Asia and Pacific region, migrant workers like OFWs were left out of the host country’s financial support systems, simply being told to return home despite travel bans and flight cancellations around the world.
Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang and Institute for Migration and Development Issues (IMDI) Executive Director Jeremaiah M. Opiniano warns that an estimated 300,000 to 400,000 OFWs could lose their jobs or experience pay cuts due to the effect of the pandemic in their host countries.
Many OFWs belong to low or middle-income families, where they are the primary breadwinner. These jobs include engineers, seamen, service workers, and nurses—some of whom are frontliners in other countries.