Can man live by remittances alone? The Philippines may be about to find out. More than 8m Filipinos, a tenth of the population, work abroad. Last year they sent home record remittances of nearly $11bn, 23 per cent more than in 2004. This represented roughly a quarter of current account receipts and helped the economy grow by 5 per cent. Other traditional sources of growth are struggling. Electronics products, two-thirds of total exports, face competition with China. Exports grew less than 3 per cent last year.
The Philippines is not the only country highly dependent on its overseas workforce, but remittances are unusually important. Domestic consumption, highly sensitive to remittance inflows, is more than two-thirds of gross domestic product. Even more importantly, remittances help the Philippines meet its high external financing requirements. Years of fiscal deficits have burdened the country with public sector debt considerably larger than its GDP. Half the debt is in foreign currency. Although the government is doing what it can to raise weak revenues, debt service will continue to eat up a large proportion.
Addiction to remittances is painful. At least, unlike portfolio inflows or foreign direct investment, they are a stable source of income which remains in the country forever. And, while Filipino exports may be less in demand, its workers are very much so. The Philippines is not booming, but Hong Kong and Dubai are.