Dependence on remittances

Trump’s Iran war has thrown a double whammy on our economy, thanks to our over dependence on the Middle East for oil supply and on remittances from our overseas workers in the region. While we are now feeling the impact of the oil dependence, the impact on remittances is yet to come.

The ongoing conflict has started to affect the approximately two million OFWs in the Middle East. We are seeing a wave of voluntary and forced returns because of fears over their safety and widespread job losses as contracts were prematurely terminated.

Five major host countries – Bahrain, Iran, Iraq, Kuwait and Qatar – are now facing economic contractions. This has led to layoffs in sectors like hospitality and domestic work.

Some estimates suggest that 200,000 to 340,000 OFWs could lose their jobs if the war continues. In a worst-case scenario, up to 550,000 Filipinos may need to leave the region.

As of April 25, 2026, 7,674 OFWs and their dependents have returned home since the crisis began nearly two months ago. Many others are “sheltering in place,” hoping for the war to end so they can have better chances of landing new jobs.

The number of OFWs returning or wanting to return home is still rather small considering the two million in the region. But the state of anxiety cannot be denied.

We must be prepared for a “severe downside scenario” for global economies beyond the Middle East if the conflict persists beyond June 2026 with Hormuz remaining blocked.

This means that for the thousands of Filipinos working in Europe, East Asia and the Americas, the impact will shift from high prices to potential job instability as host nations face the possibility of a long recession.

OFWs in Europe and Asia face less physical danger than those in the Gulf but they may experience a “cost-of-living squeeze” that reduces their ability to send money home, coupled with a higher risk of layoffs.

Economies in East Asia (Japan, South Korea, Singapore and Taiwan) are among the most exposed, as they import roughly 80 percent of their crude oil through the Strait.

A shortage of fertilizer may cause a “delayed food shock,” spiking grocery prices worldwide and further straining the household budgets of OFWs living abroad.

This is precisely the problem with the Philippine economic model, heavily reliant on consumer spending fueled by OFW remittances. It should remain viable in the short-to-medium term (2025–2028), but faces increasing structural strain as its growth pace slows.

A regional bank cited Fitch’s shift of the Philippines’ outlook to negative, adding a further macro headwind, citing energy vulnerability, weaker remittances and slower growth.

Locally, the bank observed key real-economy stress points emerged: vehicle sales fell double digits on higher fuel costs, tourism and aviation faced higher fuel surcharges, flight cancellations and hotel occupancy rates below 50 percent.

While the Business Process Outsourcing sector, together with OFWs, provides a critical buffer for our balance of payments, long-term sustainability for our economy is threatened by high import dependence and a lack of industrial depth.

Unlike many other countries where migration is informal, the Philippines has a highly organized, state-led “OFW industry” with specialized government agencies (e.g., DMW, OWWA) that treat labor as a primary export commodity.

In Southeast Asia, the Philippines’ remittance reliance is in a “league of its own.” For comparison, Vietnam’s remittances account for roughly 3.4 percent of its GDP, while Indonesia’s are near one percent. Ours is at 7.3 percent.

The high remittance inflows that helped make consumption account for 72 to 76 percent of GDP also contributed to a reliance on imported goods including basics like food because local production is inadequate.

Recent data indicates that the percentage of Philippine households using remittances for investment dropped to just 6.2 percent in early 2024 from 11 percent in 2021.

We obviously can’t go on like this indefinitely. We need industries like those proposed in Pax Silica to start catching up with neighbors like Vietnam.

If we do nothing to reverse our current trend, the most probable scenario is a gradual erosion of purchasing power due to persistent, moderate inflation and peso depreciation. This should normally force any sane government to accelerate reforms in agriculture and manufacturing but based on history, it probably won’t happen with ours.

But pray there won’t be any more wars like the current Trump war in the Middle East or one that’s even larger. A major geopolitical conflict in the Middle East causing mass repatriation or a significant devaluation of the peso could trigger an immediate crisis, rendering our current lackadaisical consumer-led model in death throes within one to three years.

So, while remittances provide a sturdy floor for the current account, the lack of a strong industrial base makes the system fragile. Without diversification, our economic model faces diminishing returns over the next decade.

This is why Pax Silica is important. It has the potential to help future-proof the Philippine economy by shifting it from a consumer-driven, remittance-dependent model toward high-value industrialization. It aims to build a secure global supply chain for AI and semiconductors, with the Philippines serving as a critical strategic node.

Right now, we are focused on low-value chip assembly and testing. Pax Silica aims to move the country into higher-value activities like Integrated Circuit design, wafer fabrication and advanced packaging.

Pax Silica also intends to process the Philippines’ vast, untapped reserves of nickel, copper and cobalt locally. This could reduce our reliance on raw material exports (mostly to China) and foster domestic “allied manufacturing.”

Concerns about extra-territoriality can be addressed by adopting the international arbitration system for dispute resolution, something we already use. We have to put inconsequential fears aside and be pragmatic for our economy’s sake.

It is time to make good choices now. Doing the same old things or doing nothing threatens our economy and the country’s survival.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco