Remittances, a shield from the next financial crisis?

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  • Remittance recipient countries are less vulnerable to external risks, according to a report from Manila
  • Venezuelans now rely on the remittances of family members living abroad
  • Remittances play a crucial role in reducing poverty incidence

As Wall Street stocks plummet, countries that receive billions of dollars in remittances should not worry, according to a report from the Manila Bulletin, a national daily in the Philippines. Top remittance recipients are shielded from the looming financial crisis, the report says, as they contribute to the country’s foreign exchange reserve. Financial crises in the past were barely felt in the Philippines because of its dollar reserve, and it is set to protect it yet again should the market crash.

Overseas Filipinos transfer money internationally on a regular basis. The funds sent are in the billions, based on recent numbers. The Southeast Asian nation receives an average of $25 billion in remittances per annum despite relatively high overseas transfer rates. A World Bank report notes that the country is projected to receive a total $33.7 billion before 2018 ends.

The shock absorbing capability of remittances played a crucial role in the global financial crisis of 2008 and even shielded the country when a taper tantrum happened in 2013. The Philippines, based on recent history, survived several crises because it had enough reserves to shield it from external risks, analysts say.

Based on the latest data from the country’s central bank Bangko Sentral ng Pilipinas (BSP), the estimated 10 million Filipinos working abroad send an average of $500 home each month.

In Venezuela, where many have fled the country due to an economic and humanitarian crisis, remittances have become a lifeline for those who are left behind. Venezuelans abroad send $1 billion a year to family members back home per year, money that is critical to the country’s growth at a time when the minimum wage is less than $2 a month. Due to the burgeoning remittance industry in the country, the government reportedly closed down a number of exchanges to open a government-owned service.

Mexico, on the other hand, receives an estimated $25 billion per annum and like the Philippines, it is set to receive $33.7 billion this year.

With 244 million migrants around the world, remittances are now a huge contributor to economic growth. According to analysts, they are needed in times of crisis to either give the economy a boost or to protect it from plummeting.

Remittances also help households fund businesses, pay for schooling, utilities and medical bills. Studies done by the International Monetary Fund, the Asian Development Bank and the World Bank note that remittances have the power to reduce poverty incidence.

As the world economy saw a sharp downturn in 2007, remittances helped India ride out the storm. With Indians sending an estimate $50 billion a year, the cash infusion helped the economy. According to Ria Money Transfer, remittances replaced lost wages at the time, noting that without said fund transfers: “families simply didn’t have the financial wherewithal to survive”.

Find out more about the remittance industry here.
 


Andrea Barnes
Editor
Andrea is Communications Manager at FXcompared. Prior to joining FXcompared, she worked as a communications consultant for companies seeking guidance with their social media, marketing and digital… Read more

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