Leveraging Remittances for Development: The Philippine Experience DIWA C. GUINIGUNDO Deputy Governor Bangko Sentral ng Pilipinas 1 04 October 2009 2009 Small States Forum on Remittances Istanbul Congress Center
Outline of Presentation I. Economic impact of remittances II. BSP s initiatives in improving the remittance environment III. Policy challenges 2
Outline of Presentation I. Economic impact of remittances II. BSP s initiatives in improving the remittance environment III. Policy challenges 3
OF Remittances do matter Overseas Filipino (OF) Remittances: US$ 12.6B - 10.2% of GDP (ave. 2004-08) 08) US$ 8.5B - 11.2% of GDP (1H 09) 50% comes from U.S. Stock of Overseas Filipinos: 8.7 million (10% of population) 42% are permanent migrants, mostly based in U.S. as professional/service workers 97% are land-based 25% are deployed in the Middle East 4
Yr. Relative size of OF remittances Growth Remittances as % of: Level Rate (in US$ Bil) 1/ (%) GDP XGS FDI GIR DSB 2002 6.89 14.2 9.0 18.2 446.6 42.1 88.7 2003 7.58 10.1 9.5 19.6 1543.4 44.4 95.3 2004 855 8.55 12.8 99 9.9 20.00 1242.7 52.7 118.5 2005 10.69 25.0 10.8 23.9 576.5 57.8 140.2 2006 12.76 19.4 10.9 24.1 436.9 55.6 161.5 2007 14.45 13.2 10.0 24.4 495.5 42.8 202.0 2008 16.43 13.7 9.8 28.1 1080.7 43.7 223.4 2009 9.97 (J-Jul) 3.8 11.2 (J-Jun) 39.6 (J-Jun) 950.7 (J-Jun) 24.8 (end-jul) 207.6 (J-Jun) 1/ Cash remittances coursed through the banks 5 NOTE: XGS exports of goods and services FDI foreign direct investments GIR gross international reserve DSB debt service burden
6 Relative size of OF remittances
Economic impact of remittances Positive effects Provide a large and stable source of FX inflows Increase consumption, allow consumption-smoothing (Tullao et al. 2007; Tabuga 2007; Rodriguez and Tiongson 2001) Reduce poverty, increase household spending and investment (Pernia 2006) 7
Economic impact of remittances Relative Magnitude and Volatility of Selected FX Inflows (1996 2008) Main sources of FX inflows % of GDP C.V. 2/ Overseas Filipinos Remittances 1/ 10.2 11.9 Exports of Goods and Services 48.0 6.3 Foreign Direct Investments Inflows 1.5 63.9 Foreign Portfolio Investment Inflows 1.7 97 8 Note: 1/ Coursed thru the banking system 2/ Coefficient of Variation = (Standard Deviation / Mean ) x 100%
Economic impact of remittances Negative effects Put upward pressure on real exchange rate, reduce competitiveness of exports, i.e. Dutch disease (Tuaño-Amador et al. 2007) Reduce labor supply, domestic work effort (Tullao et al. 2007; Rodriguez & Tiongson 2001) 9
Economic impact of remittances 4000 300 3500 Remittances REER Narrow REER Broad REER Major 250 3000 2500 200 million US$ 2000 150 in ndex points 1500 100 1000 500 50 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Q2 Source: Tuaño-Amador et al. (2007) 0
Economic impact of remittances Tradable and Non-Tradable Goods Sectors Share in Total Output Share in Total Employment Non-Tradable Tradable Non-tradables Tradables percent percent percent percent 60 48.0 56.0 56.0 59 58 57 56 Tradable Goods Sector 47.0 46.0 45.0 54.0 52.0 Tradable Goods Sector 54.0 52.0 55 44.0 50.0 50.0 54 53 52 51 Non-Tradable Goods Sector 43.0 42.0 41.0 48.0 46.0 Non-Tradable Goods Sector 48.0 46.0 50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Jan-Jun 40.00 44.0 44.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Jan-Jun 11 Source: Tuaño-Amador et al. (2007)
Outline of Presentation I. Economic impact of remittances II. BSP s initiatives in improving the remittance environment III. Policy challenges 12
BSP s initiatives in improving the remittance environment Enhancing transparency and promoting competition in the remittance market Improving payments and settlements system to facilitate remittances and reduce remittance charges Channeling remittances to financial investments Improving access of bank clientele to financial services Increasing financial education of Overseas Filipino i Workers and beneficiaries i i 13
What the BSP has done Enhancing transparency and promoting competition in the remittance market Required banks and non-banks to post remittance charges and other relevant information in institutions premises and websites Launched the OFW web portal linking to banks relevant web pages on remittance services and products, branches and remittance centers, services fees/rates 14
What the BSP has done 15 Improving payments and settlements system to facilitate remittances and reducing remittance charges Approved the use of alternative modes of remittances, e.g., internet, short messaging system Authorized rural/cooperative banks to accept foreign currency deposits Approved interconnection of 3 ATM networks (Megalink,Bancnet, Expressnet) Negotiating a project with Association of Bank Remittance Officers to set up local clearing house for credit-to-other-banks to other mode of remittances
What the BSP has done Channeling remittances to financial investments Promoting microfinance as flagship program for poverty alleviation since 2000 Encouraging commercial banks to offer attractive investment products and services for overseas Filipinos (OFs) and design direct payment schemes Granted authority to two specialized government banks to offer investment products to OFs and their families that will help mobilize savings and allow them to hedge against foreign exchange risks 16
What the BSP has done Improving access of bank clientele to financial services Relaxed guidelines in identifying customer to one valid photo-bearing ID issued by an official authority Also allowed the use of passports issued by foreign governments as valid identification of OFs who have adopted d foreign citizenship in making financial transactions 17
What the BSP has done Increasing financial education of Overseas Filipino Workers and their beneficiaries Conducted financial learning campaigns (FLCs) in key Philippine cities and regions since February 2006 in cooperation with Overseas Workers Welfare Administration Conducted international FLCs in Hong Kong, Singapore, South Korea and Kingdom of Saudi Arabia since September 2008 in cooperation with other government agencies Use of audio-visual presentation and distribution of DVD copies through Philippine embassies/consulates and civil organizations 18
Outline of Presentation I. Economic impact of remittances II. BSP s initiatives in improving the remittance environment III. Policy challenges 19
Policy challenges Policy response is not simply a matter of increasing the inflows. Put remittances to productive use Strengthen the investment climate Improve access to credit, financial services Encourage entrepreneurial activity it Preserve competitiveness of export sector Prevent exchange rate overvaluation Look into other aspects of competitiveness 20
Policy challenges Policy response is not simply a matter of increasing the inflows. Long-term vision Strengthen, energize economy to help Philippine labor to choose to work overseas only as an option rather than a forced choice, or an imperative 21
Leveraging Remittances for Development: The Philippine Experience Thank You DIWA C. GUINIGUNDO Deputy Governor Bangko Sentral ng Pilipinas 22 04 October 2009 2009 Small States Forum on Remittances Istanbul Congress Center