Remittance slowdown to narrow surplus
By: Jeremaiah M. Opiniano
THE World Bank projects that the country’s current account surplus this year will narrow, partly as a result the increasing trade deficit and the projected slowdown of deployment of overseas Filipino workers.
According to the World Bank’s East Asia and Pacific Region in its quarterly update, the narrowing current account was due to, among others, the weakness of Philippine exports in major export destination countries, the strengthening of the real value of the peso that impacts on export growth, and the migration-related developments that will impact on the influx of more remittances from abroad.
The current account is an item in the balance of payments (BoP) that covers trade in goods, services, income and current transfers, and the remittances from overseas Filipinos. Remittances are said to be the biggest contributors to the current account.
The BoP, meanwhile, summarizes a country’s financial transactions with the rest of the world.
If the current account is in surplus, there is more money coming in than out to the country’s financial system, while the opposite happens when the item is in a deficit level.
Exports of services, the World Bank report adds, also showed signs of weakness given a sharp decline in the first quarter of 2011.
The World Bank projects that the current account surplus will narrow to 2.7 percent of gross domestic product, from 4.2 percent in 2010.
As of March 2011, the current account surplus stood at US$933 million, or 1.4 percent of GDP, data from the Bangko Sentral ng Pilipinas showed.
GDP is the sum of all goods and services produced locally.
The World Bank said that remittance slowdown will be a result of the turmoil in some of the Middle East and Northern Africa (MENA) region, and also the aftermath of the earthquake and tsunami in Japan.
“The impact of the ongoing turmoil in the Middle East should remain modest for the Philippines,” the World Bank wrote, “provided the turmoil does not spread to the larger economies.”
Countries affected by the MENA unrest account for only 2.3 percent of the estimated 8.5 million Filipinos working overseas.
But since 16 percent of the US$18 billion total remittances, and 28.7 percent of the total 1,470,826 overseas Filipino workers deployed in 2010 are from the MENA region, the World Bank said that the spreading of the MENA turmoil would represent “a significant downside risk for remittances.”
The MENA countries with unrest that the World Bank identified in its report include Bahrain, Sudan, Libya, Yemen, Iran, Iraq, Tunisia, Egypt, Lebanon, Oman, Algeria, and Jordan.
As for Japan, the World Bank said that while the disasters “had a negative short-term impact” on the Philippines, the medium-term net impacts of the Japan natural disasters are “uncertain but likely to be small”.
Remittances that pass through the country’s formal banking system boost the country’s dollar reserves–as reflected in the gross international reserves–helps boost the Philippine peso, and helps stabilize the country’s BoP position. (OFW Journalism Consortium)