The significant decline in remittances at the height of the COVID-19 pandemic contributed to the sharp contraction of the gross domestic product in the Philippines in the second quarter, the International Monetary Fund said in a report Wednesday.
It said the drop in activity in the second quarter was particularly sharp in India and the Philippines, given the continued rise in virus cases and extended lockdowns. The IMF’s statement is contained in the latest Regional Economic Outlook for Asia and the Pacific Region.
The IMF said that while economic activity plunged by 24 percent year-on-year in the second quarter in India with large contractions across all sectors except for agricultural production, “a fall in remittances compounded the hit on activity in the Philippines and the Pacific island countries.”
The Philippine economy entered a technical recession in the first half amid the pandemic, following a 0.7-percent decline in the first quarter and a deeper 16.5-percent contraction in the second quarter.
This brought the GDP average in the first half to a decline of 9 percent. Cash remittances in April posted the biggest decline in almost two decades as large number of overseas Filipino workers lost their jobs amid the global health crisis.
Cash remittances in April plunged 16.2 percent to $2.046 billion, the biggest drop since the 33.5-percent contraction in January 2001. As a result, cash remittances declined by 3 percent to $9.448 billion in the first four months.
Bangko Sentral ng PIlipinas Governor Benjamin Diokno said remittances would likely shrink by only 2 percent this year, based on the latest data showing that remittance flows in the first eight months slowed by 2.6 percent to $19.285 billion from $19.808 billion a year ago.
“Other analysts predict that OF remittances would contract by as much as 20 percent… With four months to go before the end of the year, there is a strong likelihood that the 2020 OF remittances would shrink by less than 5 percent,” Diokno said.
The IMF also said in the report that some countries in the region reopened their economies before infection rates fell significantly and experienced an increase in cases after reopening.
IMF particularly cited Indonesia and the Philippines that saw a stabilization in cases but had not suppressed the virus.
“India, Indonesia, and the Philippines relaxed their harshest containment measures, but many sectors remain partially closed [that is, some states or subsectors have not reopened],” it said.