IMF Team Affirms Weak Links Between OFW Money, Investment

BY JEREMAIAH M. OPINIANO

MANILA—A TEAM from the International Monetary Fund observed that remittances from an estimated eight million Filipinos abroad have not led to increased investments.

Ever since the country’s investment ratio has steadily declined since the 1997 Asian financial crisis, increasing remittances “has not increased investment,” IMF’s Ayako Fujita and Srikant Seshadri wrote in a policy analysis paper of selected Philippine economic issues done by a six-person IMF team.

IMF’s Country Report 07/131 (released last March) analyzed selected economic issues such as reforms in the value added tax law, an analysis of the economic contributions of the services sector, and credit growth and bank balance sheets in the Philippines.

Both Fujita and Seshadri were part of a six-person team that consulted Philippine economic planning and finance officials last January as part of the lender’s periodic consultations with countries.The weak links between remittances and investment is such even if middle-to-high income migrant families, whose main source of income is remittances from dependents abroad, are rising, says the IMF team.

The team cited data from the triennial Family Income and Expenditures Survey of the National Statistics Office, the same data that Milan Brahmbhatt and Dan Biller based their analyses for a report on East Asia for the World Bank.

Citing 1991 to 2003 data from the triennial FIES, the number of the two lowest-income migrant families receiving remittances declined from 60 percent in 1991 to 18 percent in 2003.Likewise, the top two income brackets among migrant families that count income abroad as their main source of income rose from 40 percent in 1991 to 82 percent 12 years after.

“Given that some 80 percent of (Filipino migrant) families that receive income from abroad as their main source are now middle and high-income families, it is much more likely now than in 1991 that the uses for this income go beyond consumption and subsistence, and are put toward saving and investment,” the IMF team’s paper wrote.

But the situation surrounding remittances and investments suggests that the lack of a relationship between investment and remittances “could indeed be transitory, and that going forward, one may see a pick up in investment in physical capital.”

The weak links between remittances and investment, however, also occurs in many remittance-receiving countries. “Country specific factors could determine whether a rise in external flows leads to greater consumption, including housing-related spending on the one hand, or greater investment in fixed capital on the other,”

In the case of the Philippines, the IMF team members observed that financial intermediation is a primary issue. “(Philippine banks are) still repairing their balance sheets, and are risk averse in the current environment,” IMF observed. But even if there were financial intermediation, the IMF team thinks that remittances as a percentage of gross domestic product should have increased by three percentage points, and this situation “might have a more pronounced effect on Philippine investment, which continues to decline.

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