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Remittances And Domestic Consumption In The Philippines

September 25th, 2017

Remittances And Economic Development in The Philippines

They’re called OFWs, or Overseas Filipino Workers. And they’re essential to greasing the wheels of the Philippines economy. Their efforts give families back home the spending power to afford essentials and even luxury goods – which in turn helps to spur domestic consumption throughout the economy.

The statistics provide some context to how important OFWs and their remittances are for the Philippines. Some 10% of the country’s people live and work abroad. And the money they send home constitutes almost 10 percent of the country’s GDP. In 2016, the World Bank estimates that OFWs sent home some USD 29.9 billion– enough to put the Philippines in third place on the list of top global remittance receivers – right behind India and China.

2017 has been a bumper remittance year for the Philippines. Data from the Bangko Sentral ng Pilipinas (BSP) shows that personal remittances hit USD 2.91 billion in March 2017 – up from USD 2.61 billion in the same month last year. The figure crosses the previous record high of USD 2.82 billion for December 2016.

Where do these remittances go? How do they help? Their positive impact is multi-tiered, and it all adds towards sparking the domestic consumption so necessary for economic growth.

First, these remittances help lift people and families out of poverty. Then, they help them avoid sliding back into the poverty trap if confronted by unexpected life circumstances – such as a family member falling sick.

And of course, they boost weekly spending on food and essentials – creating more domestic demand. But these remittances aren’t only used to meet day to day needs. A recent IFAD1 report says that around 25% of remittances received are saved, and then used in the pursuit of individual and collective goals. These savings are put into assets such as family homes. They are used to improve access to healthcare, nutrition and education – which gives the next generation a better quality of life and access to more opportunities. This is domestic consumption too – but of a more strategic nature, and geared towards the longer term.

These remittances also go towards kick-starting entrepreneurial activities and sparking micro-businesses. There is clear evidence that remittance-receiving households are more included to entrepreneurship – because they have the money to do so, and the safety net to take a chance.2

And so the virtuous cycle continues, with these small businesses employing more people and paying out wages that in turn help other families lift themselves out of poverty and further spur consumption.

In fact, SMEs are crucial to the workings of the Philippines economy. They comprise 99.6% of all registered businesses, and employ 70% of the workforce.3

These macro level stats are useful for understanding just how important remittances are to the Philippines. But they don’t paint the full picture. They don’t talk about disasters averted because houses were built properly. Or families bundling up in fresh blankets. Or young lives saved because they were taken to the hospital in time. Or financial ruin avoided because families could pay for essential medicines without breaking the bank. They don’t show the cultural norms that knit Filipinos together – where buying gifts for extended family is considered the right thing to do. They don’t show the little boys and girls heading to school with books under their arm to get an education that will help them leapfrog the previous generation.

Yes, remittances to the Philippines play a huge role in generating local demand for goods and services. But perhaps even more importantly, they generate hope for a better, more prosperous future.



1. https://www.ifad.org/documents/10180/e059cd19-9f6a-4697-9912-347fbd680ce

2. https://dirp4.pids.gov.ph/ris/pn/pidspn0712.pdf

3. http://www.oecd.org/std/business-stats/15004719.ppt