WEAK exports and the decline in remittances have caused the country’s gross international reserves (GIR) to fall to a six-year low, but economists said the Philippines has enough import cover.
In an EagleWatch briefing on Thursday, Ateneo de Manila University economists expressed confidence that the Bangko Sentral ng Pilipinas (BSP) will undertake necessary measures to ensure that import cover will not slide to the Asian financial crisis
(AFC) level.
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang said the country’s import cover, initially estimated at 12 months, declined to seven months. However, this was still higher than the level of below three months during the AFC in the late 1990s.
“If our import cover declines to below three months, interest rates will increase. This can cause panic. This is the reason for the need to maintain [a six- to seven-month import cover]. This is part of the other functions of the BSP, it has a sterilizing policy,” Ang told the BusinessMirror on the sidelines of the forum.
The decline in the GIR, Ang said, was caused by the country’s weak export performance. While the Philippines’s Asean neighbors were seeing a healthy growth of their export receipts, the country’s export performance was contracting.
Ang said the country’s exports contracted to 5.5 percent in the first quarter of the year, while exports of other Asean countries were posting growth of near 10 percent or higher.
Indonesia and Singapore posted an export growth of 8.7 percent and 9.8 percent in the January-to-March period this year, while Vietnam and Malaysia saw double-digit growth of 25.1 percent and 19.8 percent.
As a result, Ang said the country’s trade balance as a percentage of GDP was also the lowest in the region. The country’s trade balance as a percentage of GDP declined 11 percent in the January-to-March period this year.
Its Asean peers, such as Singapore, Malaysia, and Vietnam saw trade balance as a percentage of GDP growth of 13.8 percent, 9.7 percent, and 6 percent, respectively.
Remittances
Apart from weak exports, Ang said the recent decline of remittances from overseas Filipino workers (OFWs) is a first for the Philippines. He said, while remittances were expected to slow, it was not expected to decline or contract.
Ang noted OFW remittances declined almost 5 percent in June this year. The main reason was a 5-percentage-point drop to 24 percent in the remittances coming from the Middle East where the majority of OFWs were located.
While deployment stayed healthy, Ang noted that one reason for the decline could be that those being deployed to these countries were lower-skilled individuals who were given lower salaries.
“We know that its going to weaken because people are no longer—particularly the higher-income or the higher-skilled—going out…so they have a choice to work here. But the lower-income people are the ones leaving and the lowest skilled who are leaving are not getting higher pay, and, therefore, you already expect the remittances to go down,” Ang explained.
“Even if there are more people leaving, it will go down. But I hope its just a blip otherwise it places a lot of pressure on the currency because this was our buffer for many years,” he added.
Data from the BSP showed that cash remittances sent by land-based workers and sea-based workers rose by 2.5 percent and 3.4 percent to $11.2 billion and $3 billion, respectively. For June, however, total cash remittances fell by 4.5 percent year-on-year to $2.4 billion. The countries that registered the biggest declines in cash remittances in June 2018 are the United Arab Emirates, Saudi Arabia and Kuwait.
“The overseas Filipino workers repatriation program of the government may have partly affected the remittance flows for the month,” the BSP said in its statement on remittance data.
The BSP said in the first two months of 2018, a total of 4,149 OFWs were repatriated from the UAE, Saudi Arabia and Kuwait.
It added that, preliminary 2017 data from the Philippine Overseas Employment Administration (POEA) showed a decline in both land- and sea-based workers.
The deployed land-based workers dropped by 3.28 percent, or 1.61 million LBWs year-on-year, while that of the sea-based workers ell by 14.62 percent, or a decline of 378,072 SBWs.