Remittance Driven Growth

Monthly remittances inflows (US$ millions)
Source: World Bank

If anyone needed an explanation for the robust growth of the Philippine economy for the last nine years (two of which under the present dispensation), then the chart above would go a long way towards providing it. It shows monthly foreign remittances flowing from January 2003 to February 2012 into the country compared to that of some Latin American, Caribbean and South Asian countries of similar size or income to the Philippines.

In terms of its foreign remittances, the country is an absolute stand-out rising from about $600 million a month in early 2003 to about $1,500 million in early 2012. In the twelve months leading up to February 2012, the total inflows to the country was about $20.2 billion. If we convert that to pesos using the average exchange rate in 2011, that is roughly equivalent to PhP875 billion. In an economy of roughly PhP9.5 Trillion, that is about 9.2% of GDP. Given the multiplier effect that this income has, it would be safe to say that remittances contribute about double or about a fifth of the economy.

Unlike, Mexico which is dependent on its Northern neighbour the United States for providing a market for their cheap labour, the Philippine work force has its eggs in many baskets, not only in different countries, but many occupations, both high- and low-skilled. This is reflected in the data which shows that as the Great Recession unfolded in the US from September 2008, the growth in remittances to Mexico hit a ceiling, while that of the Philippines maintained its upward trajectory catching up with its North American counterpart towards the end of 2011.

As of October 2012, the nation’s gross international reserves reached a record high of $82 billion, 8% higher than it was a year ago at $75 billion. This would be enough to pay for close to a year’s worth of imports or settle half a year’s worth of debt resettlements. One can clearly see that without these foreign remittances, the gross international reserve position would be shrinking, not expanding.  In fact, if you took away the growth in remittances which was 7.1% year-on-year from 2010 to 2011, then you probably wouldn’t have seen any growth in the Philippine economy during that time.

These dollar remittances inflows are roughly the size of the Philippine government’s tax and revenue intake for a year. They could finance the government’s annual deficit three times over. The recent upgrade to the country’s credit status to one notch below investment grade owes more to this phenomenon than to the government’s “fiscal consolidation” and “debt management program”.

In its recent report for the third quarter, the global investment monitor Thomas White has said

The Philippine economy is in a sweet spot mainly due to the high infrastructure spending the country has unleashed. Adding to this, strong remittance income from oversees Philippine workers, a fast-growing domestic services sector, and increasing confidence from foreign investors bolstered to the country’s buoyant economic outlook.

If you averaged out the growth for the last four quarters, you would find that it would be  4.85% , the same as its average growth for the last ten years. The confidence of foreign portfolio investors in the local stock market comes largely from the country’s ability to keep the economy chugging along as events from Europe have dampened the outlook for other countries. This was admitted to by a senior official of investment bank Goldman Sachs in a recent visit to Manila. The White report continues by saying

With the country’s government awarding $16 billion worth of contracts to build social infrastructure that included constructing thousands of classrooms, the outlook for the infrastructure industry has grown rosy. The construction sector posted a growth of 10% during the quarter up from the 7.6% registered during the first quarter. As public spending rose, employment outlook also improved during the quarter, boosting consumer demand. Household consumption jumped 1.4% during the quarter, up from the 0.9% during the first quarter.

Notice that they say it was the “outlook” on employment from the “infrastructure outlook” that boosted consumer demand. That is either a lot of faith placed on the outlook or it was a result of hard cash pouring in from Filipinos living and working overseas (UPDATE: note that the construction boom is happening because the property and realty sector is benefiting from remittances, and this has actually gotten some analysts worried about a possible housing bubble). The report concludes by saying

…Meanwhile, despite maintaining a record low interest rate of 3.75%, inflation in the country fell to a low of 3.6% in September from 3.8% in August. The central bank has targeted an inflation of 3% to 5% for 2013.

The BSP has in fact cut interest rates recently to temper the appreciation of the peso that has been hurting the competitiveness of our export industries. The situation has been described as reaching a breaking point by industry insiders. The power of the peso relative to the US dollar is what is behind the low inflation figures as imports become cheaper. The so-called “sweet spot” of high growth, better employment and low inflation can actually be explained by the continued growth of remittances rather than any privately-financed stimulus that has yet to be spent.


Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy ( and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • manuelbuencamino, you refer to OFW “wanderlust”. Wanderlust to me is what motivates someone to explore, for the sake of exploration, to find enrichment in the unknown. I don’t think that is what happens with regard to OFW’s, whom I’d break into two classes: (1) those with skills who look at Philippine pay scales and say “I’m worth more than that, even if I have to work as a nurse to capture my value”, and (2) those relatively unskilled who look at Philippine job opportunities and say “my family has to eat; I’m outta here”.

    The former are OFW’s for offensive purposes, the latter for defensive reasons. The former can find careers abroad and afford to make the decision, retire abroad or return. The latter would dearly love to come home.

    As long as the Philippines is manufacturing product (babies) as efficiently as in the past, I can’t imagine the OFW situation changing much. Maybe if the middle class expands appreciably, the skill workers can find what they want in the Philippines. But assuming technology and automation also evolve, I can’t imagine much opportunity in the Philippines for non-skilled people.

    The tragedy is that people who don’t want to be away from their families are forced away. I don’t know if that is a big tragedy or small one. All one can say is “that’s life”, throw off a couple of hail Mary’s and keep working.

    The only benefit I see is Person A, a skill worker, goes abroad and learns more skills, then returns to impart them to the Philippines. A faster way is to encourage foreign skill to come to the Philippines.

    I don’t see much upside at all for the Philippines in the OFW industry, other than the remittances.

    • manuelbuencamino


      I spoke of wanderlust because of anecdotal experience. I have encountered quite a number of young people who fit in your two categories but the added factor is they really do want to see the world even for equal or sometimes slightly less pay. The internet, media, and all that has made probinsiyanos aware of a world out there and they want to experience it, given the chance. That’s why my question, would they stay put if things were good at home or will they venture out given the chance just for the experience of living and working abroad and meeting new people for a few years?

      From my own experience as well. I lived pretty comfortably and had a choice of going to any local university when I was a young man. My parents said I could also study abroad if I wanted but my circumstances would be drastically reduced i.e. live on campus, no car, tight allowance. But I went abroad because I wanted to see the world. And this was way before the world became interconnected as it is now. So I thought maybe there are many out there like me and more so now that every time you turn on your TV or connect to the internet or go see a movie, the world beckons. So yes many are forced to seek jobs abroad because of circumstances but those are not the only reasons why they choose to go abroad. I tend to believe that circumstances plus the chance to travel explains better our OFW phenomenon. And once circumstances change I think the urge to travel will remain simply because it will continue to serve higher human needs.

      • Yes, travel is indeed enriching, and I hope you are correct. The Philippines will become very rich with world vision. Then we can toss the provincial senate.

  • manuelbuencamino


    There is a consensus that the OFW phenomenon is driven by lack of opportunity at home. We have drawn a causal connection between poverty, lack of opportunity, and the OFW phenomenon. But beyond the data I also think that that assumption is based on the belief that people would stay at home if things were good at home. Will they? Maybe we are not giving due weight to the fact that travel and communication is now so easy that home is never more than a video call or a day’s flight at most. Assuming we develop to a level where there is opportunity at home and near parity pay, do you think Filipinos will stay home or will a significant number, meaning economically relevant, still want to take the opportunity to see the world with pay, and, if so, should the government resist or encourage it?

    Maybe we can have a conversation that looks beyond the present OFW phenomenon, one that has been analyzed negatively, one we all hold can be done away with through better opportunities, to one on how a nation can profit from the globalized perspective of its people. How do we develop at home and at the same time develop positive OFWism? Millions of people coming home after becoming exposed to hundreds of cultures must have some positives, maybe?

    • “Millions of people coming home after becoming exposed to hundreds of cultures must have some positives, maybe?”

      I’m not so sure. Filipinos seem to adapt like chameleons, becoming law abiding as soon as they step on American soil. I’m thinking they would largely adapt upon returning, becoming law disabiding like the rest of the population.

      • UPnnGrd

        you’ve been chatting up with your “get-real” buddies for too many times, JoeAm.

      • manuelbuencamino

        What is intrinsically wrong with having the ability to adapt to the place where one lives? One of the things why Americans are unliked is because they want to bring America to the places they visit instead of living and learning from the natives. They want to transform places into the image and likeness of America, if you know what I mean.

        Look around you. We now have foods from all over the planet. That was not so 20 or even 15 years ago. Filipinos bring back something. When I was living in Malaysia, I used to take the KLM flight that flew directly from Amsterdam to KL to Manila. During Christmas, the plane is packed with Filipinos from Europe. Amsterdam is a hub. In the plane I hear Filipino families speak Italian, French, German, Norwegian etc. etc. Those expat Filipinos have been exposed to other languages and ways of life and have gotten used to them and do feel a difference when they come home. So they may bring something positive or not, maybe they will still see traffic signs as suggestions but that holds true in many places in the world. So it’s not only about becoming law-abiding and stuff like that.

        It’s only in America where I experienced being pulled over for not doing a full stop at an intersection on a deserted road at 3 a.m. There are not many places in the world where that happens. It’s one of those things that truly distinguishes America. Only in America, as they say.

        You live here and I think I can say, based on your writings, that you are almost wholly Filipino. So tell me, who are the expats you like the most, the ones who adapt for better or for worse, or the ones who bitch all the time about natives not doing things like they do back “home”?

        There are no paradises here on earth. All I’m trying to say is how do we benefit, beyond economics, from interacting with the rest of the world? Can’t we sort of organize all this knowledge and experience so as to make them productive not only individually or tribally but nationally as well? That’s the conversation I’m trying to have.

        • I think our comments crossed. I had not read this before writing, above.

          I don’t associate with foreigners here, because they all bitch about the local culture. It is wearing and boring and ohhhh so small-minded.

          I see your point about the overseas experience changing one’s outlook on things, broadening it. I fear that Manila is vastly different than the provinces, and the poorer rural areas where no one travels and perspectives are ultra . . . um . . . provincial.

          • manuelbuencamino


            I think those places with a number of returning OFWs will become a little less provincial. It can’t be helped. Even those who go to work or school in Manila bring changes when they return home.

    • MB, the point of the article was not to say that the OFW phenomenon was an undesirable phenomenon. It was rather neutral on that point. All it was asserting was that the improved outlook on the Philippines owed more to its continuation than any discrete shift in policies taken.

      In light of this, perhaps the greatest visionary piece of policy making was performed in the 1970s by Labor Minister Blas Ople(?). As to how the country can benefit from these remittances, I have been on record time and time again to say that we should be using it to retire some of our more onerous loans instead of floating peso bonds internationally as per the recent action taken by the Department of Finance. By repatriating the excess dollars back overseas we would be easing the upward pressure on the peso which is driving our manufacturing industry into a ditch.

      • manuelbuencamino


        I was not criticizing your article. I was thinking of it as a jump off. OFWs are a fact of life, some see it as an unfortunate and others as a blessing. I think both perspectives are valid. What I’m more interested in however is looking at how we can benefit not only from its economic contribution but also from how it enriches our culture and gives us a better understanding of the world around us. Is there a role for gov’t. here? What, if any? Right now it seems to me that the gov’t. sees OFWs as an export product and the whole emphasis of its policy or it’s policy framework regarding OFWs is towards protecting and improving that export product. So I’m thinking farther out of the dollar signs and looking at how we can enhance the intangibles that I believe have long lasting benefits if recognized and utilized correctly. I’m asking for your perspective because you are a policy guy, you have the theoretical background that goes beyond my street view of things. That’s why I want to have this conversation. Bump ideas off each other. Like I said, someday we will be living and thinking beyond the next meal but I think the wanderlust of our people will still be there. How do we take advantage of this opportunity to enrich our nation? There are some places in this world where people have no interest in going outside their borders, We are lucky that we are not like that. We feel no fear about venturing outside our borders. There has got to be some way to turn this character asset into something that will benefit the nation. I’m sort of groping for a new way of looking at the OFW phenomenon.

        • One has too look no further than the Azkals to see how we can benefit. I’ve written about this before as well. The role of government in sports development is obvious. There are many other examples like writers, musicians, actors, film makers who have lived and studied abroad. There is a role for government there as well. Beyond these cultural exchanges is the need to leverage entrepreneurs, scientists and engineers. The Ramos administration did have a program to promote this, but I don’t know what happened to it.

          • manuelbuencamino


            Someone should dust that off and tweak it. Sayang nandun na rin sila and it is not costing us a cent, we are even making money out of it and then hindi natin gagamitin para sa ating kapakanan.

            Look at all those other developing countries who send hundreds if not thousands to study abroad at govt expense and after graduation to work abroad and gain experience and bring it home. Didn’t Japan do this when it decided to join the world a century ago?

            Maybe a policy paper from you encouraging govt to do something might just be the trick to make everyone look at the big picture.

          • Cha

            If I may just add, you might also want to consider including the cashed up migrants looking into possible business/investment opportunities in the mother country when you write down that policy paper. They can offer not only additional employment for the kababayans but also bring with them a new work/business ethic that can hopefully seep in (following mbuencamino’s train of thought).

            I know a couple of Filipino Australians who’ve already gone and done it. I suspect there’s quite a few more out there who are capable but needs more convincing or encouragement or just don’t know where to start. Now that I think about it, the President should probably have made the pitch when he visited Australia recently.

          • Much has already been written comparing the experiences of various countries. The most successful case is that of Guangdong in attracting investments from Hong Kong from HK nationals.

            India has tried to emulate this with their Indian IT professionals in Silicon Valley to transplant them back to cities like Bangalore and Hyderabad in order to set up entrepreneurial ventures. They have experienced somewhat limited success in this. Not quite as good as China’s experience.

            The case of the Philippines is probably even less successful because our OFWs tend to work in professions like health and education or in blue collar occupations where the entrepreneurial opportunities might be confined to investing in a tricycle or a sari-sari store when they return. There are government programs that do try to target them, but by and large, most of their incomes go to the essentials of building a home, feeding, clothing and educating their kids. The capital base and entrepreneurial skills have to be built up further.

          • Cha

            Agree about the limited capital base and entrepreneurial skills when it comes to OFWs. That is why I was suggesting to look at the migrants who have already made their fortunes in their adoptive countries and who may, for either patriotic or practical reasons, want to invest their money on Philippine ventures. Or is there already an existing effort, policy or program towards this end?

          • Do you mean venture capitalists and angel investors or social entrepreneurs? I myself have been pondering how to do this when I retire someday. It goes beyond my area of competence, but Cocoy I believe would be the best man to consult regarding this.

          • Cha

            Thanks, I think you just gave me an idea there.

  • Cha

    In a recent interview with Rappler’s Maria Ressa, the President has indicated the desire to someday bring home the OFWs via a stronger Philippine economy. While a noble aspiration, it probably will not happen during this administration or even in the next one. To say that it’s easier said than done is an understatement, not to mention the implications on the economy which your analysis would tend to show.

    Besides, given the growing globalization of the workforce in most developed countries, becoming an OFW had actually become an attractive option for Filipinos in white collar jobs. I think the more realistic and pragmatic goal would be to grow the economy such that there are enough jobs, and good paying ones at that, to stem the tide of departing OFWs. At the very least, college graduates like teachers and nurses should not be ending up as domestic helpers in other countries. No more OFW domestic helpers.

    • “A Nation of Professionals and Executives and Technicians.” I rather think that is an honorable goal.

  • Very striking analysis, thanks. The Mexico trend vs. Philippine certainly shows that the Philippines is more diversified in this peculiar product export. There is some vulnerability to it, however, if OFW’s determine they are getting ignored, used, screwed, or whatever uncomfortable adjective you’d care to attach to it. Or if they become American as to family style and greed and decide they don’t like being milked by the folks back home.

    If I set my sarcasm aside, I actually think the Philippines is working hard to make sure OFW’s are cared for properly, and the nation has more “skill” at managing the “business” than any other country. I’ve tempered my previous objection to people being “used” as commodities, as it is a personal choice for them.

  • UPnnGrd

    Well, Doy…. you have to give credit to PersiNoynoy somehow… you have to, don’t you? Just based on a statistical sample-size of 1 (meaning GuLLOO being jailed… okay… sample size of 2… she got jailed twice (meaning on 2 different charges)) that’s a strong indication of the impact of PersiNoynoy on Pilipinas GDP. Three…. to include Corona. Four… to include PersiNoynoy firing deputy ombudsmen. Five… to include Ombds-woman Merceditas realizing she does not have money to fight, so she quit her office. Six… cancelling the contract for Laguna Bay dredging. seven… there has to be a 7th (and surely an “8” and a “9” from Trillanes involvement in Scarborough negotiations). Ten — a more fearsome Malakanyang with PersiNoynoy getting bill into law so Malakanyang doesn’t need court-oversight for Malakanyang to listen to devices that can do e-mail and instant messaging

    Eleven — PersiNoynoy agreeing to :”nuclear” power for Pilipinas. And to make it a dozen — PersiNoynoy’s KKK Puno going into retirement.

    • I bow to your almighty wisdom, UPnnGrd

      • UPnnGrd

        The ecstasy in being in love is seeing cause and effect in a sun that always rises in the morning.