By Luisa Maria Jacinta C. Jocson, Reporter

FILIPINO HOUSEHOLDS’ heavy reliance on remittances could leave them more vulnerable during economic shocks, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper, citing the low savings and investments among families.

The paper, authored by BSP Assistant Governor Veronica B. Bayangos and Research Associate Cymon Kayle Lubangco, said that households dependent on remittances could be at risk of external headwinds.

“A substantial decline in remittances would have serious consequences at both the macroeconomic and household levels. Vulnerable remittance-receiving households could face reduced access to education and healthcare, negatively affecting their quality of life,” the paper said.

“Local communities that rely heavily on remittances could experience economic disruptions. For instance, during the COVID-19 (coronavirus disease 2019) pandemic, families of overseas Filipino workers (OFWs) saved and invested less.”

BSP data showed the percentage of households that used remittances as savings dropped to 31.7% in the fourth quarter of 2021 from 33.4% in the same quarter of 2020. However, this improved to 32.1% in the first quarter of 2024.

Households that used remittances for investments also fell to 6.2% in the first quarter of 2024 from 11% in the third quarter of 2021.

“In our analysis, we find that OFW households prioritize immediate consumption over saving and investing,” the paper said.

In the first quarter of this year, the bulk (96.6%) of surveyed OFW households used their remittances for food and household needs.

“The saving rate for cash remittances peaked in 2009, where an average of 13.1% of cash remittances were allocated for savings. Since 2009, the average saving rate for cash remittances among OFW households has slightly declined to around 9.0-10.0%.”

“Despite slower remittance growth, data show that many households and rural communities still rely on remittances for their livelihood,” it added.

The BSP paper showed that migrant households’ immediate consumption is geared towards nonfood spending compared with non-migrant households.

“These nonfood commodities are largely welfare-inducing commodities such as health, education, and housing. The allocation towards productive consumption goods shows that remittances are treated as transitory income,” it added.

Unemployment and wages also impact remittance receipts, highlighting the “altruistic motivation of sending remittances,” according to the paper.

“However, given the global effect of such shocks, this may also expose remittance-receiving households to risks if their overseas Filipino members cannot send remittances due to the economic conditions in their respective host countries,” it said.

HOUSEHOLD SPENDINGMeanwhile, the BSP paper also showed that cash remittances “significantly affect household spending.”

“The inflow of remittances is positively influenced by the number of OFWs abroad, the unemployment rate, and the depreciation of the peso. Conversely, higher regional wages and bank transaction costs reduce remittances,” it said.

Latest data from the BSP showed cash remittances grew by 2.9% to $22.22 billion in the January-August period from $21.58 billion a year earlier.

The United States accounted for nearly half or 41.3% of overall remittances in the first eight months. This was followed by Singapore (7%), Saudi Arabia (6.1%), the United Kingdom (4.9%) and Japan (4.8%).

The BSP paper said that remittances are a key contributor to the economy as these “augment foreign currency reserves, alleviate pressure on the exchange rate, and reduce the need for foreign borrowing.”

“They also support capital market development, enabling recipients to accumulate productive assets and invest in financial instruments, while enhancing human capital. Remittances can also alleviate government financial burdens for social welfare programs.”

The central bank noted that as household income rises, consumption likewise increases.

It cited studies showing that household spending increases as migrants send home money to support their families, which is prominently seen in countries with “high unemployment and debt-laden households.”

However, the paper also noted that remittances have remained somewhat stable despite shocks such as the COVID-19 pandemic.

“Several factors explain the resilience of remittance flows to the Philippines during extreme economic conditions, such as the COVID-19 pandemic. Overseas Filipinos (OFs) are a diverse group, and their ability to remit varies with employment stability,” it said.

“OFs in essential sectors, such as healthcare, likely continued sending remittances, while those in more vulnerable sectors experienced declines.”