Ten Million Reasons Why Cheap Oil Might Hurt The Philippines
(Bloomberg) -- Cheap oil should be a good thing for a country like the Philippines that imports almost all of its fuel, but there are 10 million reasons why that may not be the case.
That’s how many Filipinos work overseas, many of them on rigs, tankers and as domestic help or construction workers in oil-producing nations in the Middle East. Together they sent home $22.8 billion in the first 11 months of 2015, around 10 percent of gross domestic product. The potential for a slowdown in remittances is being closely monitored, the central bank said last week.
A prolonged period of oil at less than $30 a barrel could create an economic headache for the successor to President Benigno Aquino, who steps down in June, and may further weaken the peso, which has fallen the most in Southeast Asia this year. The negative impact on remittances and less revenue from fuel taxes will outweigh the positive effects, according to Benjamin Diokno, the country’s budget secretary from 1998 to 2001.
“We’re heavily dependent on overseas Filipino workers,” said Diokno, who is now an economics professor at the University of the Philippines in Manila. “Some of them are coming home also in part due to war, which only magnifies the problem.”
The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan.
That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.
“Before, when the trouble would be concentrated in one of the countries in the Middle East and North Africa, the workers could just simply move to a neighboring country and find employment,” central bank Governor Amando Tetangcosaid Jan. 25. “Now the trouble is more widespread.”
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