Low oil prices affecting remittances from Middle East

MANILA, Philippines - The continued decline in the prices of oil in the world market has started to make a dent on the amount of money sent home by Filipinos working and living in the Middle East.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the growth in the amount of remittances from Filipinos based in the Middle East has slowed down 6.77 percent to $3.56 billion from January to August compared to $3.36 billion in the same period last year.

Remittances of Filipinos working in the Middle East grew steadily to $5.33 billion in 2014 from $4.35 billion in 2013 and $3.47 billion in 2012 but at a slower pace. This translated to a lower growth rate of 22.5 percent in 2014 from 25.4 percent in 2013.

Credit rating agency Moody’s Investors Service also noted the drop in remittances from the Middle East, whose petroleum and service industries rely to a large extent on Filipino labor.

Moody’s said remittances from the Middle East account for roughly one-fifth of the total amount of money sent home by overseas Filipinos.

Moody’s, on the other hand, noted a slight uptick in the remittances from Filipinos in the US. Remittances from the US went up 5.33 percent to $6.86 billion in the first eight months from $6.5 billion in the same period last year.

In 2014, remittances from the US inched up 4.7 percent to $10.37 billion from $9.9 billion in 2013.

“In contrast, remittances from the United States, the largest source of remittances, have steadily increased in line with a healthier economy,” Moody’s said.

Remittances from overseas Filipinos is a major source of dollars that beef up the country’s foreign exchange reserves helping the Philippines survive external shocks.

The cash sent home by Filipinos abroad boost private consumption, helping sustain the gross domestic product (GDP) growth of the Philippines.

Benjamin Oliva, first senior vice president of the Global Filipino Banking Group at Philippine National Bank (PNB), said the steady drop in the price of oil in the world market has raised concerns on the infrastructure spending in the Middle East.

“The price of oil has gone down to less than $40 per barrel leaving concerns whether Middle East countries will continue to spend the way they are spending now on infrastructure,” Oliva said.

Oil prices hit an all-time high of $143.68 a barrel in July 2008 amid strong demand from China and Nigeria as well as declining supply from Nigeria and Iraq. Oil prices slipped below $40 a barrel in August amid the global economic slowdown.

Oliva is still confident that remittances would pick up in the last quarter of the year in preparation for the Christmas season.

“We expect an uptick in remittances towards the Christmas season. We see an additional one to two percent growth in remittances in the last four months of the year,” he added.

BSP Deputy Governor Diwa Guinigundo earlier said the central bank is confident of meeting the five percent growth target for remittances this year amid the slight setback in August.

“I believe remittances will continue to be stable at around five percent for 2015. In the last quarter of the year, we expect renewed heavy inflows because of the holidays,” Guinigundo said.

The BSP has set a five percent growth in remittances from overseas Filipinos this year.

However, cash remittances climbed only by 4.1 percent to $16.21 billion from January to August compared to $15.57 billion in the same period last year.