BSP cuts growth target for OFW remittances

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has lowered the projected growth of remittances from overseas Filipino workers (OFWs) over the next two years due to the expected global economic slowdown.

In an online press conference, BSP officer-in-charge for Monetary Policy Sub-Sector Dennis Lapid said the Monetary Board has approved the lowering of the growth target for remittances to three percent for 2023 and 2024 from the original target of four percent.

“OFW remittances have been revised downward in terms of the growth rate to three percent from four percent previously. This mainly reflects the moderation in global GDP (gross domestic product) growth as overall activity in host economies tends to moderate,” Lapid said.

He said the overall outlook for the external environment, particularly for external economic activity, continues to suggest that the global GDP growth would continue to be subdued.

Based on the projection of the International Monetary Fund in its latest World Economic Outlook, Lapid said global GDP growth is expected to slow down to 2.9 percent this year and rebound to 3.1 percent next year from 3.4 percent last year.

“The overall picture for growth is more than subdued recovery or growth prospects,” Lapid said.

According to Lapid, other external risk factors that could affect the country’s external payments position include persistent high inflation, a protracted Russia-Ukraine conflict, debt distress in some economies, uncertainty in monetary adjustment, and potential ripple effects from the banking sector concerns with the collapse of Silicon Valley Bank and Signature Bank in the US.

Locally, Lapid said risks include persistent high inflation that continues to exceed the BSP’s two to four percent target as well as waning pent-up demand.

The BSP missed its four percent growth target for OFW remittances last year after it rebounded with a 5.1-percent increase in 2021 from a contraction of 0.8 percent in 2020.

Data from the central bank showed that personal remittances grew by 3.6 percent to an all-time high of $36.14 billion last year from $34.88 billion in 2021, of which cash remittances coursed through banks went up by 3.6 percent to $32.54 billion from $31.42 billion.

For January, both personal and cash remittances increased by 3.5 percent to $3.07 billion and $2.76 billion, respectively.

The peso has rebounded strongly after slumping to a record low of 59 to $1 in October last year due to the aggressive rate hikes delivered by the BSP to tame inflation as well as the central bank’s active intervention in the foreign exchange market.

BSP Senior Assistant Governor Iluminada Sicat said a study showed that the depreciation of the peso contributes to the increase in remittances.

Sicat, who is also sector-in-charge of the BSP’s Monetary and Economic Sector, said that while the depreciation of the peso boosted OFW remittances last year, other currencies where Filipinos are residing or working also weakened against the dollar.

“So if you come to think of it, broadly the peso equivalent may have been the same,” Sicat said.

Sicat explained that remittances are countercyclical as OFWs tend to send more money to their loved ones to catch up with increased expenses whenever conditions in host countries or in the Philippines are bad.

“In 2022, we experienced an increase in inflation and definitely while the peso depreciated and Filipinos would send in more to get more peso equivalent of that. But on the other hand, the reason why they send in more is to be able to ensure that their families in the Philippines will be able to catch up with the rising prices,” Sicat explained.