Boom in remittances has hidden cost back in the Philippines

Filipinos working overseas are likely to have sent back more than $18 billion last year. Although this boosts GDP, it also detracts from the country's skilled workforce.

Abu Dhabi, United Arab EExpatriate workers in Abu Dhabi send money to the Philippines. Remittances make up about 10 per cent of the country's GDP.

The Philippines is heading for another boom year in remittances if the figures released last week for November are anything to go by.
According to data released by the government, Filipinos living and working overseas in November sent home a total of US$1.61 billion (Dh5.91bn), up 10.5 per cent on the same period in 2009.
In the 11 months of last year, remittances from the estimated eight million overseas workers totalled $17.07bn, well up on the $15.78bn for the same period in 2009.
The central bank is expecting remittances for last year to be about $18.7bn. Victor Abola, an economist with the University of Asia and the Pacific, was more bullish, expecting remittances to total $19bn.
Remittances contribute about 10 per cent to the South East Asian nation's GDP, making it the second-largest source of foreign capital behind local value-added exports such as electronic components.
Much of the money that is sent back goes into consumption such as buying cars, homes and mobile phones in a country where the World Bank estimates one out of four people live on less than $1.25 a day.
Remittances have become the major source for consumption in the Philippines because little is saved or spent on building small businesses.
With the release of the figures last Wednesday, Cayetano Paderanga, the economic planning secretary, admitted that remittances would continue to be the main source for consumption in the foreseeable future.
Foreign investment continues to be woefully low compared with other countries in the Association of South East Asian Nations (ASEAN). According to World Bank data, annual net foreign direct investment (FDI) from 1990 to 2009, as a percentage of GDP, was less than 2 per cent compared with Singapore and Vietnam where net annual inflows exceeded 10 per cent.
The government is hoping for a surge in foreign investments from public-private partnerships projects in the coming year.
Mr Paderanga said he was hopeful that as peoples' disposable income rose they would consider putting extra money into savings or investments. But as yet there appears to be little sign of that happening.
According to the World Bank's Global Economic Prospects (GEP) 2011 report, worker remittances are critical for a number of countries in east Asia, where income flows from the expatriate labour force can amount to a substantial share of GDP. Remittances continued during the worst of the recession in 2009 and are estimated to have increased 6.4 per cent in east Asia last year.
Although China leads the remittances table in the region with $48bn in 2009, according to the World Bank, such flows account for only 0.9 per cent of the country's GDP.
Despite much of the pre-election hype last year by many of the presidential candidates, including Benigno Aquino, the president, about wanting to bring Filipino workers back home, the economic reality makes that an impossibility.
Amando Tetangco, the central bank governor, said demand for Filipino workers overseas was high because of their "diversified skills". Although the government takes growth in remittances as positive news, economic managers agree that the huge number of Filipinos working and looking for work abroad is an indication they find better job opportunities outside the country.
Professor Ernesto Pernia, an economist with the University of the Philippines, who has written extensively about the subject said "migrants typically are among the better-educated and experienced workers in the home country".
"Their departure often results in a disruption of economic activity."
Economists have warned that by letting the best and brightest leave the country it holds back real economic growth and makes it difficult for new industries to attract investors because the country lacks skilled workers.
Prof Pernia says that when skilled workers leave, the quality of those who replace them is questionable, resulting in a "deterioration in quality".
He has cited education and heath as two examples where the migration of domestic workers has affected the quality of education and health care in the Philippines.
 
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