Remittance growth is expected to slow down in the coming years, resulting in the moderation of the current account surplus, British bank Hongkong and Shanghai Banking Corp. said in a report Tuesday.
“The growth rate of remittances will nonetheless slow from a high base, after years of continuous growth. The BSP [Bangko Sentral ng Pilipinas] recently revised down its 2016 forecast from 5 percent to 4 percent, and we expect growth to naturally moderate from there due to base effects,” HSBC said.
The foreign bank said as the Philippine economy expanded alongside an infrastructure buildup, the effect of remittances on growth and the current account would wane over time.
“Services exports from ‘business processing outsourcing’ and related sectors will partly offset the relative decline of foreign currency earnings from remittances, but the current account surplus may nonetheless weaken by 2017, unless the trade deficit sees a sustained improvement, which is unlikely,” HSBC said.
The bank said remittance growth had been remarkably resilient over the years, shrugging off both financial crises and economic slowdowns until the slowdown in 2015.
“The 2015 slowdown in remittance growth is surprising. There is no one answer to explain the dramatic slowdown in the second half of 2015. Geographically, the sharp decline in remittances from the US has been the main source of the deceleration, while remittance growth from Asia and the Middle East remains relatively strong,” it said.
It said the slowdown in remittances from the US could be traced to some factors, such as stricter financial regulations and higher bank transaction costs, “while FX [foreign exchange] weakness in domicile currencies explains the moderation elsewhere.”
“There are also some tail risks from tensions in the Middle East, such as further political instability or unlikely currency devaluations,” it said.
HSBC said demographic expansion suggested the Philippines would continue to have a surplus of workers over the next few years, particularly in prime working age cohorts.
It said while growth had been robust lately alongside an infrastructure boom and tourism sector growth, the country still had underemployment issues and was unable to create the amount of quality jobs needed.
“Fortunately, demand for Filipino OFWs, or overseas foreign workers, should remain strong, especially from the aging societies in Asia [increasingly for well-trained and better paid healthcare professionals],” it said.
Latest data from Bangko Sentral showed that money sent home by overseas Filipinos in November 2015 grew 3.2 percent to $2.19 billion from $2.122 billion a year ago.
The November expansion was a recovery from an almost flat growth of 0.2 percent in October. This brought cash remittances in the first 11 months to $22.83 billion, or 3.6 percent higher than $22.031 billion a year ago.