Remittances have become more economically significant, but the International Monetary Fund (IMF) said that while important, remittances should not be seen as a solution to economic and financial woes in the developing world.
According to the Regional Economic Outlook Report of the IMF, workers’ remittances were the largest source of foreign financing for developing economies like the Philippines, second only to foreign direct investments.
In 2005, the IMF said remittances to developing countries amounted to $167 billion and the Philippines alone received over $11 billion.
This year, remittances are expected to surpass the $12 billion mark. However, the financial gains from exported labor might not be sustainable over the long term due mainly to weaknesses in the allocation of public funds.
According to economist and former finance undersecretary Romeo Bernardo, the country is approaching a point where the government should examine the sustainability of these inflows.
According to Bernardo who heads the think-tank Lazaro Bernardo Tiu & Associates, the Philippines is under-investing in human resource development, particularly education, in relation to its peers.
"This is the point where we have to start asking how sustainable are OFW remittances?" Bernardo said during the panel discussion that followed the presentation of the IMF report.
According to Bernardo, one clear leading indicator was government spending on education which had declined steadily from an already very low level.
"You can check this by looking at government spending on education and it’s a fairly simple indicator," he said.
According to Bernardo, per capita government spending on education was recorded at P1,224 in 2000 to P1,208 in 2005.
"If that is how much are spending on education, we will eventually run out of qualified people who will be able to get higher paying jobs in the international labor market," he said.
According to the IMF, remittances offer a hedge against oil shocks but tended to falter when exports weaken and economic growth slows down.
"They also decline when the home investment and political climate worsens and do not seem to respond to adverse shocks at home," the IMF report said.
The IMF said that remittances should be encouraged but should not be seen as a panacea.
"Remittances can yield important economic benefits to recipient countries, providing financing and supporting consumption and investment," the IMF said. "But they may be of only limited value in absorbing shocks and reducing vulnerability to crisis."
According to the IMF, maximizing the economic impact of remittances would require the promotion of the financial sector and improving the business climate to mobilize these funds towards more productive economic activities.