News Analysis: Peso weakens as remittances from overseas workers surge

MANILA, Philippines (Xinhua) - The peso, the country's local currency, has weakened to a three-year low on Wednesday as dollar remittances from overseas Filipino workers (OFWs) surged to an all-time high in November last year.  

The local currency closed at P45 pesos to $1 on Wednesday from 44.815:1 the day before. This was the weakest since Sept. 1, 2010, the last time when the currency was at the 45:1 level.

Government data show that retail sales in the US rose by a stronger-than-expected 0.2 percent last December. This has bolstered expectations that the US Federal Reserve would accelerate the pace of tapering its bond-buying program to allow interest rates to rise from their record lows.

According to Amando M. Tetangco, governor of the Bangko Sentral ng Pilipinas (BSP), the country's central bank, the movement of the peso is being influenced by a lot of factors, including the uncertainty about the speed and the duration of the Fed tapering of its stimulus program.

Tetangco said there are also the still-remaining questions about the ability of Europe to achieve economic growth and continue with the financial sector reforms that they have started to implement.

The inter-agency Development Budget Coordination Committee ( DBCC), which sets the government's official macroeconomic assumptions, expects the peso to average between P41 and P43 to a dollar this year, implying that the currency should strengthen from its current level later in the year.

Tetangco said that stable consumer prices and above-trend economic growth would also help protect the economy from external shocks.

"If you look at the region, our currency has not depreciated the most or appreciated the most. In terms of volatility, we are also in the middle," Tetangco said.

Tetangco stressed that the Philippines' macroeconomic fundamentals remained sound, citing the country's robust balance- of-payments surplus and ample reserves - both supported by remittances from overseas Filipino workers.

Growth in remittances rose as expected OFWs with families in the Visayas sent home more money to fund reconstruction efforts following super-typhoon "Yolanda" (international name: Haiyan) that hit a wide swath in Central Philippines on Nov.8 last year.

The BSP reported Wednesday that remittances for the month of November reached record high as improving economic conditions abroad fueled higher demand for OFW labor.

"The steady deployment of OFWs remained the key driver of growth in remittance flows," Tetangco said in a statement.

There are now more than 10 million Filipinos working in foreign countries, mostly in the Middle East.

Data from the Philippine Overseas Employment Administration ( POEA) show that approved orders for OFWs stood at 731,254, of which 43.2 percent were processed job orders mainly for services, production, professional, technical and related workers.

These job orders were intended for the manpower requirements of Saudi Arabia, United Arab Emirates, Kuwait, China's Taiwan, Hong Kong and Qatar.

OFW remittances are the biggest source of foreign exchange income for the Philippines. These flows are also a strong driver of domestic consumption, which contributes about two thirds of gross domestic product (GDP).

Remittances for November reached a record high of $2.063 billion, slightly higher than the $2.062 billion recorded a month earlier. The level for November was up 7.5 percent year on year, faster than the 7 percent for the previous month.

This was the highest growth rate since January of 2013 when the amount of money sent home by OFWs rose by 8 percent.

The weakening of the peso is actually a blessing for the OFWs since they would now be able to get more in pesos from their earnings abroad which are in US dollars. This would also spur local consumption and help boost Philippine exports.