Services
THE IMF teams selected issues paper cited remittances in the chapter on services, which is the top performing economic sector compared to agriculture and industry. Philippine economic data from 1998 to 2005 showed that services contributed 2.37 percent to the Philippiness real GDP growth, while industry and agriculture contributed only 0.95 and 0.56 percent, respectively to GDP growth.
Citing the same years of coverage, services contributed 1.64 percent of employment, agriculture only 0.22 and industry only 0.14 percent.
The IMF team affirmed as well that the Philippines is increasingly exporting its labor to sustain growth, whether it is through growing remittances, or through growth in off-shoring services. Meanwhile, domestic investment has declined.
Trade and transport, storage and communication services have been the growth drivers for the Philippines in terms of services. Meanwhile, financial and real estate services provide added momentum from 2005 to 2006, says the IMF team, as overseas Filipino workers (OFWs) have been target markets for such since they are beginning to save and invest more as they earn higher incomes (see figure 2).
The paper, however, did not cite hard data on the number of OFWs who save.
The IMF team acknowledged that large and growing remittance inflows, a sufficient supply of skilled labor for both overseas and domestic jobs, and competitive wages in certain service sectors such as business process outsourcing are the major factors that have propelled the Philippiness growth in services.
Remittances have reached 11 percent of GDP growth in 2005 as compared to only seven percent in 2002 since the technical skill levels and wages being earned abroad are higher. Thus, the IMF team said remittance inflows have also kept consumption growing at a healthy pace supporting domestic demand.
The countrys bloated population and rising unemployment have led to the occurrence of the migration of skilled workers to developed economies, but the IMF team observed the rate of overseas migration can be stemmed if more jobs become available in the high-value services sector.
The Philippines has also been the place for business process outsourcing (BPO) investments since the country offers competitive wages and cost savings for BPO companies. The IMF team cited the Philippiness strength in BPO sectors such as call centers, medical transcription and animation.
Data from 1975 to 2006 from the Bangko Sentral ng Pilipinas showed that formal banking channels have received over US$105 billion in remittances. Some US$12.8 billion in remittances were recorded in 2006.
Scale effect
THE Philippines, the IMF team analyzed, has relied on what it calls a scale and a quality effect.
The scale effect pertains to the sending of higher numbers of workers abroad. In 2006, the Philippine Overseas Employment Administration reported that just over a million temporary contract workers were deployed overseas.
The quality effect, meanwhile, pertains to the exploiting of higher returns to human capital in the form of remittances, as well as the growth of off-shoring (by) capturing a share of those higher returns domestically.
In terms of the long-term sustainability of relying on the scale effect, which is labor export, the IMF team thinks this has natural limits.
The IMF team recommended necessary improvements in infrastructure for the BPO sector, as well as a renewed emphasis on education, particularly for the engineering and scientific disciplines, since these are essential in high value-added overseas jobs or (in) high-value offshore servicing industries.
But without increased savings coming from these skilled workers in the domestic and overseas service occupations, the IMF team said the strong indirect effects from the growth of services (for the Philippines) may not be realized (see figure 3). OFW Journalism Consortium
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