It is said that the Overseas Filipino Workers (OFWs) are the modern heroes of the Philippines, because of their sacrifice to go abroad to work for the betterment of the economic status of their families. Unbeknownst to many, there is another reason why they are called as such—working abroad and sending their hard-earned salary to their families actually aid in the growth of the Philippine economy, all thanks to their remittances.
Defined as the money that OFWs send to their families in the Philippines, OFW remittance are either sent through formal or informal channels. Through a formal channel, OFWs remit their money through a bank. In this mode, the OFW will bring his/her salary of foreign currency to the bank, which shall be transmitted to the branch in the Philippines as specified by the OFW.
It is considered as a safe way of remittance, as the money goes through the strict monitoring of banks. On the other hand, an OFW can also use the informal or door-to-door channel. In this mode, an OFW can also send his/her wages through a personal courier, who can be a family relative, friend, or workmate, who will go back to the Philippines, and deliver the money door-to-door, or through meet-ups. This method is considered as cheaper, since there won't be a need to pay at the bank for each remittance.
However, it might become dangerous regarding certain risks, such as the assurance of the delivery. OFW Remittances, specifically those that are sent through a formal channel, play a huge role in the economic growth of the Philippines.
As of July, cash remittances amounted to $1,927B in July, the highest record since December last year, as Banko Sentral ng Pilipinas says. What does this statistic mean? It means that aside from the export of goods and services, remittance is a huge factor, if not the largest, source of foreign currency for the nation. In what way do OFW remittances specifically help the growth of the country's economy, then?
HIGHER PURCHASING POWER
Money received by the family of the OFW is spent for survival—food, clothing, shelter, utility, etc. Thus, this money helps in domestic consumption, a key factor in the expansion of the economy. It also means that OFW remittances are tools for the economic betterment of a family, because they already have higher funds. Purchasing money is the ability of a person to buy a commodity if his/her money is sufficient for that object. It is the number of goods and services that can be purchased with a unit of currency. It can also be used in entrepreneurial pursuits and technological transfers.
GIR, or gross-international reserves, are the sum of all foreign exchanges. Remittance is the second largest source of foreign exchange, following exports. As of August 2013, Philippines' GIR rose from 2.08% to $82.942B, or roughly Php 3.3 Trillion, from $81.225B in June.
GIR is comprised of foreign investments, foreign exchanges, gold, and special drawing rights. With higher OFW remittance, the country's currency becomes stronger than before. This means that Philippines can defend peso against other currencies.
With a stronger currency, the government can make a stand in its debt servicing. Total debt service is the sum of principal repayments and interest actually paid in foreign currency, goods, or services on long term debt, interest paid on short-term debt, and repayments or repurchases and charges, to the International Monetary Fund (IMF).
A rise in peso can help lessen the debt, since the country's debts are mostly in US Dollars. Like what was mentioned in the earlier paragraph, higher GIR can defend peso against other currencies. A rise in our local currency will result to the lower value of other currencies. With higher levels of reserves, there will be a higher appreciation of peso and inflation will be kept on-check.
With these, it really shows that OFW remittances do really play a great role in alleviating the economical status of the country. What makes it even more heroic is that the strength of peso results to a lower value of the non-Philippine currency, a backlash at the OFW's family.
However, the betterment of the country's economic status will also help them in the long-run. Whether it be in inclusive growth or the growth of the national economic status itself, it really is proven that OFW remittances help the Philippine economy.