Cheap fuel prices may feel as a relief to consumers, but the domestic economy may be more exposed to risks than most think given the significant chunk of Filipino migrants in the Middle East.
The health of economies in the Middle East are tied to their ability to profit from the oil business, which in turn determines how many migrants, including Filipinos, can be hired and the salaries these same workers are paid.
Last August, cash transfers or remittances from overseas Filipino workers (OFW) declined by 0.6 percent, the first contraction in more than a decade. Dutch financial giant ING noted that remittances from oil-rich Middle Eastern countries have slowed sharply.
“Prolonged drop in oil prices and the fiscal strain of this and fiscal spending may account for a more modest growth in remittances from the Middle East,” ING economist Joey Cuyegkeng said.
Growth in remittances from the Middle East eased to 6.8 percent from January to August of 2015 from the 22.7-percent growth in 2014 and 25 percent growth in 2013.
The major host economies for OFWs in the region are Saudi Arabia and the United Arab Emirates (UAE). The two countries accounted for 17.4 percent of all remittances last year.
“We had warned of the impact of lower oil prices and oil revenues and moderating fiscal spending that could limit remittances growth,” Cuyegkeng said.
Apart from slowing growth in the Middle East, caused mainly by low oil prices, the currencies of Saudi Arabia and the UAE in particular have been relatively steady against the dollar from end-2013. This means changes in foreign exchange values contributed little to the decline in remittances from those two countries.
The dollar’s rally since the start of the year could have affected remittances in two ways. First, a weaker peso means OFWs can send fewer dollars home while still allowing their families to pay for bills and buy groceries in peso. It also understates the amount of money that is sent to the Philippines in currencies other than the dollar, which is the currency used for reporting total remittances data.
Despite the dip in August, officials have remained hopeful. BSP Deputy Governor Diwa C. Guinigundo last week said the government would stick to its projected 5-percent growth in remittances for the year.
If the forecast is met, remittances would reach a record high $25.6 billion. Remittances are the Philippines’ biggest source of foreign exchange income, which keeps the peso stable. In 2014, remittances accounted for nearly a tenth of gross domestic product. Paolo G. Montecillo