Wow. September OFW Remittances Suffer Worst Shrinkage Since 2003! More Signs of US dollar Shorts

The law of diminishing returns continue to plague the OFW Remittances

Let us hear it straight from the Bangko Sentral ng Pilipinas. Observe how the BSP attempts the sanitization of the news (bold mine)

Personal remittances from Overseas Filipinos (OFs) reached US$23.2 billion for January to September 2017, registering 4.8 percent year-on-year growth, BSP Governor Nestor A. Espenilla, Jr. announced today.  Personal remittances from land-based OFs with work contracts of one year or more including other household-to-household transfers rose by 5.1 percent to US$18.4 billion while those from sea-based and land-based OFs with work contracts of less than one year likewise increased by 3.5 percent to US$4.8 billion for the same period. However, personal remittances in September (at US$2.3 billion) were 7.0 percent lower than the level posted in the same month last year.

For the first nine months of 2017, cash remittances from OFs coursed through banks recorded 3.8 percent growth from the level posted in the same period a year ago, reaching US$20.8 billion. Cash remittances from land-based and sea-based workers grew by 3.8 percent and 3.5 percent to reach US$16.4 billion and US$4.4 billion, respectively.  For September alone, however, total cash remittances fell by 8.3 percent year-on-year to US$2.2 billion. 

The framing begins with the citation of the positives followed by the negative.

By relegating the negatives to the last sentences of the paragraphs, the hope is that the data would either have limited sticking power or have a reduced impact on the reader.

In fairness, the BSP provided possible reasons for such blowout in the month's deficit.

This was attributed to the 11.7 percent drop in cash remittances from land-based workers which offset the 6.0 percent increase in transfers from sea-based workers.  There are reports that a number of global correspondent banks have closed their service facilities on money service business (MSB), reflective of the increasing global trend to reduce correspondent banking relationships and focus more on home market. This may have partly affected remittances flows during the month.

The countries that registered the biggest declines in cash remittances in September were Saudi Arabia, followed by Kuwait, Qatar, and Australia. For Saudi Arabia, the decline in remittances could partly be the result of the continued repatriation of OF workers under the Saudi Arabian Amnesty Program which started last March 2017. On 26 September 2017, the Saudi government extended the amnesty program anew and a total of 8,467 undocumented Filipinos already availed of the initial offer, according to the DFA.

Cash remittances coming from the United States (US), Saudi Arabia, United Arab Emirates (UAE), Singapore, Japan, United Kingdom, Qatar, Kuwait, Germany and Hong Kong comprised  about  72 percent of total cash remittances in the first nine months of 2017.

First of all, the gist of remittance recipients has likely been from the lower income segment which serves as their sustenance. Hence, if disruptions have occurred in the foreign banking system’s money service business facilities (MSB), OFWs will likely resort to sending money through the informal channels. 

Next, the OFW’s destiny has been grounded upon the state of global political-economic affairs.

Back in 2015, I warned that Saudi Arabia could be a material factor in the OFW’s slowdown [Phisix 7,550: Sorry Folks, But Declining Growth Rates of OFW Remittances Represents An Established TREND! October 18, 2015]

Here is an excerpt:

Saudi Arabia is state of economic funk. As evidence, she has declared a cut on political spending in response to ‘record’ budget deficit, have been drawing from her foreign currency reserves to bridge this record deficit (forex reserves has plunged 11% from August 2014 highs), Saudi’s sovereign wealth fund has been selling equities (mostly European equities) also designed to shore up her government’s finances, and lastly, statistical GDP has been falling and has been expected to fall further.

Saudi’s plight has not entirely been about oil, but also about her huge welfare state. She has been an active geopolitical player in the Middle East where Saudi forces have been militarily involved in the Yemen civil war against Iran supported Shia Houthi insurgents.

And it has been more than Yemen. The Saudi Arabia government has long helped in the plotting of the overthrow of the Syria’s Assad regime which she has been forthright. 

Syria’s civil war, which is an extension of the proxy war between the US and Russia (aside from Ukraine), has become an enormous humanitarian disaster.

And Saudi’s anti Assad stance brings her directly against the alliance of supporters of the Syrian regime: Russia, Iran, Iraq and China which raises the risks of escalation of war in the region.

Well, Saudi Arabia is in a tight spot.

Despite the rally in oil prices, Saudi’s foreign exchange reserves continue to dwindle.

Also, the Crown Prince of Saudi Arabia Mohammad bin Salman (MBS) recently “purged” rivals to his father’s throne, which not only has deepened the fissure in Saudi’s ruling family, it has raised geopolitical uncertainty in the Middle East. MBS also reportedly plotted to expel Qatar from the Sunni Arab community, as well as, had been instrumental in the resignation of Lebanon’s prime minister. Lebanese Prime Minister Saad Hariri, who flew to Riyadh by orders of MBS, appears to be under house arrest

Moreover, with the erstwhile ruling party imposing labor protectionism, the Saudi Arabian Amnesty Program signifies a partial validation of my prediction.

Escalating troubles in the region has sent and will send OFWs packing home.

Third, September’s decline has not been the first.

Though, the significant contractions in September’s personal (-7.0%) and cash (-8.3%) remittances represent the largest since 2003!

 

September’s contraction signifies the ninth monthly decline since the last quarter of 2014!

In short, the rising incidences of monthly contractions paved way for the September’s huge deficit

Dabbling with statistics could have also been a factor. In the hope to see a vigorous year last half performance, the BSP could have frontloaded the remittance statistics early in the year. Unfortunately, such expectations failed to materialize.

The sharp September decline has weighed on the year-to-date performance for personal and cash remittances. First, 2017’s 9-month showing has reinforced the downtrend which began in 2014. Next, the rate of change in personal remittances has almost equaled last year and was barely higher than the post-Lehman bankruptcy in 2009. Last, cash remittances growth rate dropped below 2009!

Here’s the rub. Because remittances represent income in support of final demand, such material deceleration entails of a weaker topline for consumer business sales/nominal GDP.

With decreased consumer spending amidst the race to build capacity, how will this gap be filled? By more credit financed domestic consumption? Or increased balance sheet leveraging?

And if credit growth will not be sufficient, how will this affect the supply side?

Remember, expectations of a linear path of consumer spending growth has pillared this frantic race to build supply

So will there be waves of new vacancies/idle resources? Will the 24/7 retail segment be the first casualty?

Next, given the shortfalls from OFW remittances, what will be the sources of the nation’s US dollar requirements?

BPO Investments have reportedly been down. [Wow. BPO Investments Collapse as the Phisix Storms to New Heights! ICTSI’s Razon Sells 3.18% of BLOOM; Signs of Wave of Insider Selling September 24, 2017]

 

How will the present trade deficits, which have been partly anchored on build, build and build, get financed? Or where will the golden age of infrastructure get its financing?

Who will do the borrowing for these? The private sector, the government or both?

With the domestic supply of US dollars seemingly under pressure, how should this affect the USD peso exchange rate?

And curiously, the peso rallied strongly yesterday (US dollar posted weakness in the Asia)

Pretty interesting developments, don’t you think?

BSP Panics Over OFW Remittances: August 16% Surge From 2015 Data Overhaul, Disclosure Censorship and Signs of Data Pump!

I will use again the quote by the BSP chief in his 2015 speech to lecture journalists on how they must think and write

Economic numbers rarely tell the complete story when taken at face value. Therefore, a responsible journalist who seeks to offer readers a fuller appreciation of the information will examine the figures within a broader context or against an array of other relevant indicators.

Though I appreciate the significance of the statements, it’s sad that such invaluable wisdom plays little part in the conduct of their policies.

So this time, I’d use such lesson against the BSP’s own data—the scintillating 16% jump in August remittances.

If I am not mistaken, the BSP has been in a panic over the real conditions of OFW remittances.

Recall that a week back, experts quoted by media attributed the market’s recent weakness not to politics but to the economy?

One even cited that the “slowdown in remittances”, not only was a “cause of concern”, but a “big game changer”. [Pressure on the Philippine Markets: It’s Not Just the Economy, It’s the Politics Stupid! October 9, 2016]

Given the steep Keynesian pedantic leanings of the BSP, where the governor heavy relies on “trickle down effects” from their policies, e.g. “How do we enable a greater trickle-down effect so that opportunities and benefits of a healthy and growing economy are cascaded to the grassroots?*, asset prices for them function as “animal spirits”.  Or for them, asset prices are key sources for spending. The higher the prices, the more the spending by asset holders in the hope of trickling down to the masses.

Hence, when markets go down or when animal spirits lose their luster, and when the officialdom senses crucial factors such as OFW remittances as being imputed for this, the agency immediately takes remedial action to restore these animal spirits.

*Amando M Tetangco, Jr: Tapping into our strengths - opportunities, threats and challenges for 2016 and beyond in the Philippines and Asia March 16, 2016 Bank for International Settlements

Long term doesn’t matter because, according to their ideological patron, we’d all be dead. So economic policies espoused by their patron dovetails with interests of politicians (in general) because they are short term focused.

I have repeatedly been saying here, that one critical reason for the BSP’s stealth stimulus has been due tothe alarming rate of decline in the remittance trend.

More than this, the BSP has had a marvelous cosmetic job of overhauling of two-year remittance data to hide from the public 4% and 6% slump in October and November 2015. [Phisix 6,800: Shocking! BSP Hid Data of OFW Remittances as October and November Monthly Reveals of CONTRACTIONs! PSE Censors 3Q Performance of Listed Firms! February 21, 2016 Before It’s News ]

They haven’t stopped.

In fact, the BSP has revised anew the 2015 data, to reflect on substantially lower numbers.

The old cumulative or annual data as of December 2015 had been at USD 28.483 billion personal and at USD 25.767 billion cash (as of June). The revised (August) data showed USD 28.308 billion personal and USD 25.607 billion cash. That’s a difference of USD 175 million for personal and USD 160 million for cash. Both original numbers were considerably lowered.  So if one compares the same with a number from a lower base, what do you get? Naturally, a HIGHER number!

 

This would be the second set of data overhaul for 2015! And we are not dealing with cents, hundreds and thousands here, but hundreds of millions of USD (billions of pesos)!

Data can be seen here and here.

BSP’s usual revisions are done after a month, but for the remittances they come as they please without explanations.

 

Regardless of the data pump, year to date growth of 4.4% and 4.6% for personal and cumulative has hardly budged away from their respective long-term trends (green trend lines).

And bizarrely, these numbers match exactly the 2015 annual growth or % change at the end of December 2015 (see June 2016 table)! The new annual growth data for 2015 had been revised lower to 3.8% and 4.0%

So the BSP needs more data PUMPING to reverse the downside and to boost the animal spirits for a longer period!

And here’s more. Yesterday’s disclosure was unique—perhaps a record. It was most likely the FIRST time in my recollection of BSP remittances disclosures to show the ABSENCE of physical deployment numbers of OFW.

And it is why I marked the “Abridge report”?

To give you an idea of what had been culled from the report, here is the July disclosure (dated September 15, 2016).

Remittance inflows for the first seven months of 2016 remained stable despite the decline in deployment of skilled Filipino workers. A preliminary report from the Philippine Overseas Employment Administration (POEA) showed that the number of deployed land-based workers (new hires) dropped by 10.3 percent year-on-year to 235,895, while that of sea-based workers fell by 44.4 percent to 134,360.

To show that this wasn’t an anomaly here is the June disclosure (dated August 15)

The continued demand for skilled Filipino workers abroad supported the steady remittance inflows. Preliminary data from the Philippine Overseas Employment Administration (POEA) indicated that the number of workers deployed in the first half of the year reached a total of 223,116 for land-based (new hires) and 93,600 for sea-based workers. The number of deployed land-based (new hires) workers increased by 0.9 percent year-on-year, while that of sea-based workers declined by 55.6 percent compared to the year-ago level. Reports further showed that for the period January-June 2016, processed contracts for land-based workers were largely for services and sales, elementary occupations (such as those working in the agriculture, forestry, fishing, mining, construction, manufacturing, and transport sectors), and craft and related trades. The top country destinations were Saudi Arabia, Kuwait, Qatar, Taiwan, and Hong Kong.

The BSP doesn’t always talk about the % changes but they have routinely mentioned of the physical deployment of OFWs. The disclosure for the month of May (dated July 15, 2016) as representative of the rest

The steady deployment of OF workers remained a key driver behind the sustained inflows of remittances. Preliminary data from the Philippine Overseas Employment Administration (POEA) showed that the number of deployed workers reached 211,799 for the period January-May 2016, of which more than 80 percent were services and sales, elementary occupations such as those working in the agriculture, forestry and fishing, mining, construction, manufacturing and transport sectors, and craft and related trades workers. 

Again no discussion of change, but yet the mention.

As one would notice, there was a sudden absence of the report on the physical deployment of OFWs for August! Why? Could it have been that the BSP forgot about reporting them? Could it have been the lack of data for the suspension of the report? Or could it have been deliberately done as not to spoil, the most likely, data pump?

Ironically, a Bloomberg report today entitled “Slumping Oil Prices Are Creating New Headaches for Duterte”(October 18, 2016) gave us clues to why the sudden black hole in the BSP’s OFW report.

The report cites of the ongoing mass retrenchment of overseas workers in Saudi Arabia, (bold mine)

For generations of Filipinos, Saudi Arabia was a land of golden opportunity, awash with oil revenue that funded massive subsidies and construction projects. As the world economy boomed and oil soared above $140 a barrel, so did Saudi largesse. The party ended as crude crashed to less than $30, forcing the government to embark on big spending cuts.

The reaction in Saudi Arabia reflects a shift against imported labor that is rippling across the world, from anti-immigrant Brexit supporters in the U.K. to the build-a-wall rhetoric of Donald Trump in the U.S. and a clampdown on migrant labor in countries like Singapore, Thailand and South Korea.

One of the hardest-hit places is the Philippines, adding another headache for new President Rodrigo Duterte. Saudi Arabia was the top destination for Filipino workers abroad, and hundreds of thousands more went to the United Arab Emirates, Qatar and other oil-dependent economies in the region. The money sent home by more than 10 million expat workers around the world accounts for 10 percent of the Philippine economy.

The numbers…

More than 8,000 Filipinos lost their jobs in Saudi Arabia this year, the foreign affairs department estimated, threatening a flow of funds that has been both a pillar of consumer spending for families of expat workers and a stable source of foreign exchange.

Making things worse is the weakening of another pillar of overseas employment -- hiring for merchant and cruise ships. Demand for seafarers fell 44 percent in January to July from a year earlier, the central bank said. Philippine mariners account for about a quarter of the 1.5 million seafarers worldwide…

The attribution…

The loss of jobs for foreign labor in the Middle East may be affected by more than a cyclical drop in oil prices, according to Dilip Ratha, lead economist for migration and remittances at the World Bank’s Development Prospects Group. "More worrisome are structural factors such as de-risking by commercial banks and the labor market ‘nationalization’ policies in Saudi Arabia that discourages demand for migrant workers," he said in an e-mail.

While increasing labor protectionism has indeed been a factor, that would NOT be the main cause.

 

The main cause has been economic and financial conditions.

Saudi Arabia could be at risk of experiencing a banking crisis. The firewall being erected by the central bank has been unsuccessful, so far, as interbank lending rates have remained restive and elevated.

Proof? From the Business Standard October 18, 2016: The interest rate banks charge one another for loans rose by the most since August on Sunday, extending a trend that's slowing earnings and corporate borrowing in the world's biggest oil exporter. The increase is defying the central bank, which has sought to ease the cash crunch by relaxing lending limits, offering new borrowing facilities and injecting funds into the financial system, including 20 billion riyals ($5.3 billion) pledged September 25. (bold added)

Furthermore, Saudi’s economy has been in skids. Even the once vaunted Saudi bureaucracy has been experiencing retrenchment

From Bloomberg “Saudi King Cuts Once Untouchable Wage Bill to Save Money” September 26, 2016: Saudi Arabia canceled bonus payments for state employees and cut ministers’ salaries by 20 percent, steps that further spread the burden of shoring up public finances to a population accustomed to years of government largesse.

So with Saudi’s economy hurtling towards earth, such has only inflamed nationalism that prompted for demands to reduce OFWs (from the Philippines and elsewhere)

Here is what I wrote last June [As Growth Rates Slow, The BSP Toys with OFW Remittance Data Anew! June 19 2016], global political developments also matter. The rise of nationalism (anti-immigration, right wing politics) may prove to be a significant barrier to overseas employment.

It’s happening!

Add to the above, not only Saudi but the US economy has been languishing too.

The US GDP has substantially been decelerating. Not a good sign for over 4 million Philippine expats. And certainly not a good sign for remittances.

Both US and Saudi are just part of the global economy.

And here is the World Bank with their outlook on remittances [Trends in Remittances, 2016: A New Normal of Slow Growth World Bank Blog October 6, 2016]

The outlook for remittance flows for the region has worsened due to weak global economic prospects and de-risking, leading to decrease in growth of remittances to 2.1 percent in 2016 compared to 4.1 percent in 2015. The Philippines is likely to see the slowest remittance expansion in the past decade, to 2.2 percent, reflecting a decline in overseas worker deployments.

As for predicting the impact of Saudi’s dilemma on domestic OFW, here is what I wrote on December 15, 2014 or two yeard ago [Before It’s News: Phisix: The October Syndrome is Back! Philippine Casinos as the Causa Proxima?]

Yet if oil prices remain at below the cost to maintain the GCC’s and oil producing welfare states which may end up with the cutting of social services, how far before Arab Springs or popular revolts emerge?

And yet how will the blowing up of the Middle East bubble extrapolate to Philippine OFW remittances? More than half or about 56% of OFWs according to the Philippine Overseas Employment Administration (POEA) have been deployed to this region. Will OFWs (and their employers) be immune from an economic or financial crisis?

This appears to be happening too!

This shows that the 16% August growth remittance growth serves as an incredible example of the BSP “shouting statistics” aimed at warding away financial demons in order to boost the “animal spirits”.

As I have noted, OFWs are mainly levered to the global economy, but are also influenced by political developments abroad, currency values, quality of job openings, and importantly, by the local economy

For as long as the global economy continues to wobble, it’s close to certain that the August data signifies an anomaly or a from one-time event (influx due to separation or severance pays and etc…). Or it could be from data mining or torturing of statistics (late reporting of July data, or forward reporting or borrowing data from the future) or plain statistical padding.

I have repeatedly written here how G-R-O-W-T-H and OFWs represents an economic self-contradiction. [As Growth Rates Slow, The BSP Toys with OFW Remittance Data Anew! June 19 2016]

the BSP can’t seem to take into context the contributions of domestic economy. For instance, the government has been shouting at the top of their lungs that the economy continues to boom, where jobs have allegedly been growing! Yet if true, then why wouldn’t OFW growth slow? Has the government come to believe that the Philippine residents can multiply its population at the rate of how Gremlins populate?

In a genuine economic boom, where job and income substantially grows, there will be little incentives for residents to work overseas or seek migration. The fact that there remain a good number of people looking for job overseas essentially defies the government’s account of an economic boom!

And as for stoking the animal spirit, the yelling of 16% G-R-O-W-T-H OFW remittance worked.

Like Pavlov’s dog, every screaming of G-R-O-W-T-H has served as conditional stimulus for the select few in the public to panic buy. Or, it gave gamblers and manipulators the fuel to engage in a wanton free for all pumping! The (afternoon delight) bidding was relentless post lunch. And this culminated with another frenetic marking the close, which added 16% to the 2.89% jump for the day. Companies pushed at the last minute shown at the rightmost pane.

It’s not just OFW data, but perhaps the Philippine leadership’s visit to China today could be part of the press campaign to bolster or welcome the so-called foreign policy “pivot” through the stock market pump. If so, then it’s sad to see how markets become perverted for the political goals.

Going back to the OFW data, so while the BSP chief laudably warned of financial stability risks,[History in the Making: BSP Chief Warned on Financial Instability Risks! Castigates Fund Management Industry to Uphold Standards! August 7, 2016], unfortunately through data mining or statistical pumps, instability risks would only be fostered and nurtured.

Of course, data and market manipulations are merely symptoms of gross inflationism.

For now, the animal spirits have returned.

The trillion yuan php question is for how long?