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Contribution Of The OFW To The Philippine Economy

Updated on Nov 27, 2019
Contries Remitting to Philippines

An Overseas Filipino is a term used to refer to a person of Filipino origin who resides outside the Philippines. This term applies to Filipinos who are abroad as permanent residents in a different country as well as to those who are abroad for a limited period for employment or education. According to the International Labour Organisation, there are approximately 11 million Filipinos overseas.

So, who is an OFW?

OFW or Overseas Filipino Worker is a term used to refer to Filipino migrant workers who reside outside the Philippines for a limited period for employment. According to a report by the Philippine Statistics Authority (PSA), with statistical data from 2017, an estimated 2.339 million OFWs are living and working abroad. In other words, all OFWs are Overseas Filipinos but not all overseas Filipinos are OFWs.

OFWs are considered economic heroes of the country because of their significant contribution towards the growth of the Philippine economy. Remittances sent by OFWs accounted for 11% of the total GDP of the country in 2018. The Philippines is one of the top 5 economies in the world that benefit the most from remittances.

Inflows to Philippines

OFWs are responsible for the surge in the volume of remittances sent back home. Remittance inflows to the Philippines have been on a rise. The graph above shows a steady rise from $28 billion in 2014 to $34 billion in 2018. The Philippines is the fourth-highest recipient of inward remittances after India ($79 billion), China ($67 billion) and Mexico ($36 billion) according to the World Bank.

Which is the best country to work for an OFW?

The world is a global village and so is the labor pool. Where an OFW is in demand depends on the type of employment, gender, education, and skillset.

OFWs around the World

Statistically, most OFW men go to the Middle East for construction, mining, and oil-related jobs. And women tend to go to Southeast and East Asia for domestic jobs. In North America, OFWs work in professional jobs, including nurses, doctors, and other types of healthcare jobs. According to the Philippine Statistics Authority, Saudi Arabia is the most preferred country for OFWs to work at 25.4%, others being UAE, Kuwait, Hong Kong, and Qatar.

OFWs Professions

Although, North and South America account for only 5.4% of the OFW population. The highest remittance to the Philippines by country comes from the United States($11 billion). Followed by UAE($4 billion), Saudi Arabia($3.7 billion), and Canada(2.4 billion). The United States and Canada combined contribute around 40% of the total remittances received.

Let’s look at how OFWs remittances are contributing to the Philippine economy.

  • Balance of Payments: It is one of the most important economic health indicators of a country. A surplus means the country has earned more dollars than it has spent during the period. A deficit means the country has spent more dollars than it has earned.
  • Remittances sent through the legal financial system are immediately caught in the country's balance of payments which is tracked by the central bank, Bangko Sentral ng Pilipinas (BSP). Remittances represent a significant portion of the earnings of Filipinos working abroad that are transferred to their home families and BOP of the Philippines.
    OFWs BoP

    This chart above represents the Balance of Payments of the Philippines in the second quarter of 2019. The positive balance indicates net outflows, which is the amount the country spent. And a negative balance indicated net inflows, which is the amount the country has earned. Remittances come under Current Account. As you can see, the current account deficit narrowed to US$1.7 billion from US$3.8 billion in the same period last year. This can be partially attributed to the remittances from OFWs with the 9.5% expansion in net inflows amounting to US$4.3 billion.

  • Exchange Rates: An exchange rate defines the health of a nation’s currency versus the currency of another nation or an economic zone. With a stronger currency, the cost of imported goods decreases which lowers the prices for consumers. This can aid in the settlement of the country’s debts and liabilities. Since the country’s debts are mostly in US dollars, a stronger peso will minimize the debt. The Philippine Peso gets stronger with higher OFW remittances, which means it is worth more relative to other currencies. The steady inflow of remittances empowers the country to buy more foreign goods and services. This also signifies that it is now in a more comfortable position to service its external debt and other international obligations.
  • Foreign Reserves: Foreign Reserves or Gross International Reserves(GIR) is the sum of all foreign exchanges, including foreign investments, foreign exchanges, gold, and special drawing rights (SDR). The GIR is a crucial component of the economy as it is often used to manage the country’s foreign exchange rate against excess volatilities. OFW remittances are the second-largest source of foreign reserves after exports, even surpassing the foreign direct investment flows. As of June 2019, the Philippines’ GIR rose to $85.38 billion.
  • Household Income: Household income refers to the combined gross income of all members of a household or family. It is an indicator of the financial health of a region. The receipt of remittances adds up to the incomes of the recipient households. Some households completely rely on remittances. Other households with sources of domestic incomes, use remittances to supplement their existing income. Regardless, remittance forms a large portion of the fixed monthly income of many families in the Philippines.
  • Standard of Living: Household consumption rises with an increase in income As remittances go straight to the hands of families, friends, and relatives, they use the money to improve their standard of living overall. If you are an OFW, you may want to check out what are the tax implications while sending money to the Philippines. Many economists have cited a direct positive correlation between remittances and improved healthcare, education, and even entrepreneurial pursuits. The positive impact of remittance inflows is felt by whole communities where there are recipient households. OFWs come from a broad representation of the country's regions. So, the cover of improved living standards can be seen at the level of barrios and towns as well as big cities and provinces.
  • Purchasing Power: Purchasing power is the value of a currency pegged against the amount of goods or services that one unit of currency can buy. Remittances have been termed as the “drivers of domestic demand”. Remittances help in financing private consumption by increasing the purchasing power of the people in the Philippines.
  • The Last Word

    OFW remittances are closing the gap between the poor and the wealthy by contributing to a growing middle class. With improved living conditions and more disposable income, the consumption of goods and services increases, which drives the economy forward.

    In conclusion, the inflow of remittances can have a significant impact on the country’s economy. OFW remittances have significantly contributed to a positive force on the country's earnings of foreign exchange. By substantially adding to the country's earnings in foreign exchange, these remittances have contributed to the strengthening of the nation's balance of payments position, sustaining the surpluses on current accounts.

    Even though it is a personal sacrifice to leave behind families and loved ones to go abroad and seek employment with higher wages. The remittances sent by the foreign workers are not only contributing at the macroscopic level of the national economy of the Philippines but also at the microscopic level of household finances.

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