Dropping dollar not making sense for OFWs

The falling Canadian dollar and global economic slowdown in cash remittances from overseas Filipinos could leave the Philippines more exposed to global cyclical currents warn bankers.
Cash remittances from land-based Filipino workers amounted to $17.6 billion, while that of sea-based Filipino workers reached $5.2 billion from January to November last year.
About 79 percent of the cash remittances came from the US, Saudi Arabia, the United Arab Emirates, Singapore, the United Kingdom, Japan, Canada, and Hong Kong.
Manila depends heavily on the remittances by more than 10 million Filipinos overseas.
HSBC economist Joseph Incalcaterra said the share of remittances to both the gross domestic product (GDP) and the current account (CA) would decrease as the Philippine economy moves into a period of sustained higher growth compared to the past decades.
“This means the Philippines’ natural external buffer that has provided a back-stop for growth in times of challenges may erode, leaving the Philippines slightly more exposed to global cyclical currents,” he said.
HSBC said remittances not only drive private consumption, which accounts for almost 75 percent of Philippine GDP, but keep the country’s current account entrenched in surplus, offsetting the structural trade deficit.
“Remittance growth has been remarkably resilient over the years, shrugging off both financial crises and economic slowdowns alike … until 2015,” he added.
The Bangko Sentral ng Pilipinas has slashed the growth target for cash remittances to four percent instead of five percent for 2015 and 2016 due to the global economic slowdown and the depreciating currencies in host countries against the greenback.
Incalcaterra said a confluence of factors could explain the dramatic slowdown in the second half of 2015. “Geographically, the sharp decline in remittances from the US has been the main source of the deceleration, while remittance growth from Asia and the Middle East remains relatively strong,” he noted.
He also blamed stricter financial regulations, higher bank transaction costs, foreign exchange weakness in domicile currencies, for the sluggish growth of remittances.
“There are also some tail risks from tensions in the Middle East, such as further political instability or unlikely currency devaluations,” Incalcaterra added.
BSP deputy governor Diwa Guinigundo earlier downplayed the impact of the rising tension between Saudi Arabia and Iran on the growth of cash remittances.
“In the past we had the 1991 Gulf War and the 2003 second gulf war, but our overseas Filipino workers were able to move elsewhere and find alternative employment,” he said.
However, he said the flexibility of overseas Filipinos would be affected if the conflict spreads to other countries in the Middle East.
“My concern is that if the Saudi-Iran conflict extends beyond their respective borders and affect all the contiguous jurisdictions, then we will have some challenges,” Guinigundo warned.
Incalcaterra said services exports from the business process outsourcing (BPO) and related sectors would partly offset the relative decline of foreign currency earnings from remittances.
“While services exports, driven by BPO, will likely overtake remittances this year, from a net export perspective it will not offset the magnitude for several years according to our calculations,” he added.
He said the current account surplus could nonetheless weaken by 2017 unless the trade deficit sees a sustained improvement.
Many of those recent immigrants send about $500 per month back to family in the Philippines.
Mel Vincent Tejero, who came to Canada from the Philippines in 2004, said he sends $300 back to his wife and daughter every two weeks. The low Canadian dollar has forced him find another job to continue with the regular transfers, he said.
"I work two jobs at the moment to be able to keep up and support them," he told CBC in an interview..
Christine Straehle, a migration expert at the University of Ottawa, said the low dollar could also be difficult for temporary foreign workers.
"Most of these people work in low- to middle-income jobs. Most people will send $500, maybe $800 per month. And every exchange rate, every worsening of the Canadian dollar in relation to the American dollar will affect the rate of return for the people back home," she said.
Dilip Ratha, the World Bank's lead economist on remittances, says international migrants will send $601 billion to their families in their home countries this year, with developing countries receiving $441 billion. 
More than $23 billion was sent from Canada to other countries in 2014, according to the World Bank. About $2 billion of that was transferred directly to the Philippines, the CBC said.
Ratha, said that while the impact of Canada's weakening dollar won't be felt right away, it has the potential to be significant.
"A fall of, let's say, 25 per cent in the currency could translate to maybe a 10-per-cent impact on the remittance flows from Canada to the Philippines. So, we're talking about an impact of about $200 million," Ratha said.