22 January 2019
The Philippine peso has lost about 16 percent against the US dollar, largely because of a US interest rate hike and slowing overseas remittances. Photo: Internet
The Philippine peso has lost about 16 percent against the US dollar, largely because of a US interest rate hike and slowing overseas remittances. Photo: Internet

How Philippine peso has become a victim of economic success

Pressure is mounting on the Philippine peso amid slowing remittances, with more workers returning home to take advantage of new opportunities created by economic growth.

In January, the peso traded at 47.51 to the dollar on average, its weakest in more than six years, largely due to an outflow of foreign funds after the US interest rate hike.

The average softened 6.5 percent on the year, Nikkei Asian Review reports, citing the Philippine central bank said.

The downtrend became pronounced in mid-2013, when investors retreated from emerging markets after then US Federal Reserve chairman Ben Bernanke hinted that he might scale back monetary easing.

The peso was 16.7 percent weaker in January compared with the same month in 2013.

But slowing remittances also are dampening demand for the currency.

Filipinos are known for their English skills and they work in a wide range of jobs from seamen to nurses in the US, the Middle East and elsewhere.

Including those with permanent residency abroad, about 10 million, or 10 percent of the total population, send money back home to their families.

The families, in turn, convert those foreign currencies into pesos.

Some US$22.8 billion in remittances were sent to the Philippines through banks in the first 11 months of 2015, a 3.6 percent increase on the year.

The figure had grown at a 6 percent clip in recent years but seems to be losing steam.

Transfers from the US, which account for 40 percent of the total, dipped 2.7% on the year.

Overseas workers are returning to the Philippines as its economy grows.

For decades, Filipinos went abroad to support their families due to a lack of jobs and industry in the country.

Those remittances fueled consumption, and the economy is now expanding quickly by 6 percent annually, creating more opportunities at home.

In 2014, 1.83 million Filipinos went to work abroad, about 3,600 fewer than the record marked the year before, the Philippine Overseas Employment Administration said.

Recently, people also have used their savings from the Middle East to buy cars to drive for Uber, a ride-hailing service that is now officially part of the government’s plan to provide better transportation to its citizens.

The Philippines’ population of 100 million is growing by 2 percent yearly and many of them would prefer to live and work with their families at home.

President Benigno Aquino has announced plans to create more jobs in the country, with a focus on expanding the manufacturing sector including measures to help create a domestic auto industry.

Remittances eventually will drop when the Philippines has enough opportunities for its citizens within its borders.

But that cash flow also safeguards the peso from weakening too far, since it means some people are always unloading the dollar to buy the Philippine currency.

The country relies on imports, especially for energy, and logs an annual trade deficit of over US$10 billion but the more than US$20 billion in remittances lets the government consistently achieve a current-account surplus.

Also, the Philippines’ foreign reserves have grown and its sovereign bonds rose to investment grade status in 2013.

English speakers are in high demand among employers around the world.

Japanese shipper Nippon Yusen has even established a maritime college in the Philippines to recruit crew members.

It’s unlikely that the number of overseas workers or the amount of money they send home will suddenly plummet.

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