Truths and myths about Remittances
Culled from the Paper of Executive Director Ma. Teresa M. Soriano entitled “Managing Overseas Migration Program Under a Globalized Regime:  Is It Any Different?” presented during the OECD-World Bank-IOM Seminar on Trade and Migration, Geneva, Palais Des Nations, 12-14 November 2003

Issue Date: July - September 2004

Increase in overseas employment is likely to remain. Whether or not it will be used as a growth strategy, a lot of issues still remain to be addressed either through dialogues or improved protection and welfare services for OFWs and their families.  For one, their remittances should be channeled into more productive investments to fuel economic development.

Secretary Sto. Tomas noted that overseas employment is instrumental not only in easing domestic unemployment but also in propping up the economy.  At the macro level, it has kept the Philippine economy afloat and even helped the country’s Gross National Product (GNP) reach a positive growth rate with no less than US$6 billion remittances per year.  OFW remittances have contributed much to the country’s GNP and foreign exchange earnings.  In fact, remittances comprised, on the average, about two per cent of GNP in the eighties, and that contribution has more than doubled to 4.8 per cent in the nineties.

Economic contributions.  Official records show that dollar remittances channeled through banks have grown from US$1.5 billion in 1991 to US$6.0 billion in 2000.  For 2002 alone, remittances amounted to US$7.2 billion, roughly 8.6 percent of the country’s national output.  Assuming that the average basic salary of OFWs is US$700 per month and there are 2.9 million undocumented workers, the amount that could be tapped per year is easily US$25 billion, excluding overtime pay, allowances, and remittances of undocumented workers.

Meanwhile, at the micro level, the contribution of remittances can be analyzed based on its effect on the OFWs’ family and community.  The steady flow of remittances has been inducing private consumption expenditures, and despite recession and higher unemployment, it has also instigated consumption-led economic growth in the recent past.  This rising consumption despite the minimal growth in the domestic economy indicates that households are getting outside support from their relatives working abroad.

At least six percent of Filipino families are receiving financial support from relatives abroad; six out of ten of these families reside in urban areas, and are relatively better off.  Based on the 2000 Census of Population and Housing, there were 800,051 households with at least one family member who works abroad.  These households far out-number those that don’t have OFWs.  

How much really is flowing in?  The exact amount of remittances that flow into the country from OFWs cannot be ascertained because the formal banking system can capture only a fraction of the total amount sent to the country.  The amount of remittances coursed through the informal, often-unsupervised channels consisting of couriers, friends, and relatives who hand-carry the money, payroll deductions, and the door-to-door remittance delivery cannot be determined with certainty.  These also include remittance items of migrant workers such as goods and the savings brought home on return that are subsequently converted into local currency in domestic banks.

Based on an NSO survey on OFWs, close to 70 percent of those who send cash remittances utilize banks, 26 percent resort to door-to-door delivery and around 4.0 percent remit through agency or local office, friends or co-workers and other means.  Considering these figures, it can be said that what is reported by the Central Bank and other official reporting agencies is underestimated.

Who’s really sending these remittances?  Large differences can be noted when the remittances are disaggregated by seven of the top ten remittance-sending countries of destination.  Particularly striking is the fact that Saudi Arabia, which accounts for the largest proportion of the OFW outflow, has contributed only an average of 6.7 percent to the total amount of remittances from 1992-2001.  On the other hand, US, which accounts for less than 1 percent of international labor migration, contributed an average of 55 percent to the total amount of remittances sent to the Philippines for the same period.  This discrepancy points to the mixed nature of the migrant flows, and consequently of the remittances.  

The overwhelming proportion of Filipino workers in the world, particularly in Asia and the Middle East, are in low-skilled, low-salary jobs.  The men mostly work in the production, construction, transport, and related industries while a vast majority of women are domestic helpers.  In the United States, on the other hand, highly skilled blue-collar workers and professionals dominate the Filipino migrant community.  As a result, their capacities to earn, save, and remit vary.

The economic returns to labor migration vary across skills and countries of destination because foreign wages and placement costs also vary accordingly.  Moreover, wages increase in direct proportion to the workers’ skill level.  Also, wages significantly vary within each skill category.

Issues and challenges.  The informal money transfer system exists due to a number of reasons.  One of them is foreign exchange restriction.  These regulations – which restrict trade, currency exchange, and movement of people and money – somehow affect the decision of OFWs to resort to informal money transfer.  Another reason is the weakness of the conventional financial system, which includes high costs in opening a dollar account, high tariffs and taxes, poor or unavailable service, lack of access, and sometimes, the lack of trust and confidence due to experiences in bank runs and failures. 

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