J. Albert Gamboa
Overseas Filipino Workers (OFWs) are considered a vital cog inthe Philippine economy due to the amount of remittances they send back home. What started as an experiment in labor deployment to the Middle East during the martial law era has evolved over the past four decades into a major contributor to the country’s gross national product to the tune of at least 10% annually.
Latest data from the Bangko Sentral ng Pilipinas (BSP) for October 2019 showed that personal remittances from Filipinos living or working abroad amounted to US$3 billion, nearly 8% higher than the year-ago figure. For the first 10 months this year, the remittance level reached US$27.6 billion compared to the US$26.6 billion recorded during the corresponding period in 2018.
Land-based OFWs with work contracts of one year or more made up the bulk of senders, while the rest of the remittances came from either sea-based OFWs or land-based ones with short-term contracts.
This was validated in the World Bank’s 2019 Migration and Development Brief, which named the Philippines as the fourth largest remittance destination in the world – next only to India, China, and Mexico. The top countries where senders originated from included the United States, Hong Kong, and Singapore.
Recently, international payments company UniTeller released the results of its study on the impact of remittance in India, Indonesia, the Philippines, and Vietnam. The report titled “Both Sides of the Coin: The Receiver’s Story” looks into the behavior of regular low-income remittance recipients in these four Asian countries.
UniTeller CEO Alberto Guerra said: “With global mobility increasing, remittances are playing a more important role in the livelihood of low-income families and communities. As the reliance on remittances grow, a key challenge is ensuring this income translates to building sustainable growth.”
According to the UniTeller study, half of OFW remittances received by Filipino households are used for day-to-day family needs combined with bill payments and loan repayments.
Sadly, relatively high amounts are being spent on non-essential luxury items while smaller sums are being allocated to areas that may spur economic progress such as education and savings.
Exacerbating these poor financial planning habits are findings that almost one-fifth of recipients admitted they regularly run out of money before the next anticipated date of remittance. “That’s actually a lot, which means that even if they allocate for certain expenses, these funds still aren’t being used efficiently,” UniTeller Philippines President Noel Cristal said.
The study also found out that a reliance on remittances placed increasing stress on the relationship between senders and receivers. More than 40% of the respondents reported that the anticipation of receiving remittances elicited emotional stress in their respective families, and 54% of the receivers said it impacts on their relationship with the senders.
Stress was caused by expectations that the funds might not be sent because of unforeseen circumstances, or by other uncertainties regarding remittance inflows. If this happens, 72% of respondents said they will most likely reach out to the sender for more funds, and 53% said they would have to forego day-to-day family needs.
It was quite alarming to learn that the average monthly remittance value of US$446 per OFW sender exceeded by two and half times the average monthly household income of low-income recipients in the Philippines.
Both Cristal and Guerra noted some positive trends though. For instance, 71% of the respondents indicated their eagerness to learn and cultivate good financial habits. Moreover, digital channels for international money transfers are also becoming more popular with 78% of Filipino respondents disclosing that they have mobile wallet accounts and 97% own smartphones.
Despite the dawn of digitalization in the Philippines, the most common method of receiving international money transfers is still via cash pick-ups at 67%, followed by electronic crediting to existing bank accounts at 41%, and mobile wallets at 29%.
As an indication that the digital appetite is changing, 88% of respondents were receptive to a semi-digital payment solution that would allow senders to initially confirm the transaction online and subsequently fulfill the transaction at a physical location. However, 71% raised concerns about cyber security while 57% found the processes too complex and 56% complained about not being able to receive funds.
But overdependence on remittances should not be encouraged since it could be counter-productive in the long run. We should focus instead on job creation to reverse the brain drain and other social dysfunctions resulting from the OFW phenomenon.