Overseas Filipino Remittances and the Philippine Economy: Time for a Rethink

The Philippine economy’s strength has long been associated with robust inflows of remittances from overseas Filipinos (OF). But there must be a critical re-evaluation of the role of remittances in economic growth and development, especially amid the 1 per cent tax that US President Donald Trump wants to impose on remittances from the US. The Philippines needs to diversify its growth drivers and maximise the impact of remittances on the economy.

In 2024, OF remittances amounted to an all-time high of US$38.34 billion. Mainly in the form of direct bank transfers, remittances amounted to 8.7 per cent of GDP in 2024, the highest among the major ASEAN economies (the next two are Cambodia at 6.1 per cent and Vietnam at 3.4 per cent). About 40 per cent of cash remittances came from the US, with the other prominent sources being Singapore and Saudi Arabia.

But the contribution of remittances to the Philippine economy has waned over time. Their share of GDP peaked at 12.8 per cent in 2005 and has gradually dropped since then. The growth rate of remittances has also more than halved in the past two decades: from an average of 6.8 per cent in 2006–2010 to just 3.3 per cent in 2022–2025.

Remittances led to many benefits, leading to the branding of overseas Filipinos as the nation’s “modern heroes”. They contributed to a significant increase in international reserves, as well as many years of balance of payments surpluses. The surplus of US dollars coming from remittances, together with the later surge of earnings from the business process outsourcing industry, made the Philippines a “net lender” to the rest of the world. This is significant, because throughout much of the 20th century, the Philippines suffered perennial dollar shortages and chronic balance-of-payments deficits. OF remittances practically helped to avoid balance-of-payments crises.

Second, remittances propped up domestic consumption spending, allowing the Philippines to rely on consumption as a steady source of GDP growth. Relatedly, remittances have played a role in reshaping the country’s socio-economic structure. A previous study found links between remittances and poverty reduction at home. As much as an eighth of middle-income households rely on remittances.

But such benefits are not without social costs — including family separation, emotional strain on children left behind, and reintegration challenges faced by returning OFs. These are not captured in remittance statistics but have important implications for human capital formation and social cohesion.

Dependence on remittances also exposes the Philippines to global risks, especially where labour and remittance policies are concerned. The latest is the 1 per cent remittance tax that will be implemented based on Trump’s “Big Beautiful Bill”. This involves remittances coursed through “remittance service providers and mobile apps”. While the Asian Development Bank predicted that the impact in Asia-Pacific will be relatively modest, the Philippines might lose 0.05 per cent of its GDP.

Dependence on remittances also exposes the Philippines to global risks … The latest is the 1 per cent remittance tax that will be implemented based on Trump’s “Big Beautiful Bill”.

The effects may be minor, but more anti-remittance policies may emerge in the US, and the crackdown on illegal immigrants and efforts to remove the citizenship of even naturalised immigrants pose added threats to the biggest source of Philippine remittances. Elsewhere, especially in the Middle East, conflicts have repeatedly posed risks to remittances and even the lives of OFs. In Europe, the steady rise of anti-immigration right-wing political parties has led to tighter visa policies, at the expense of Filipinos.

These risks highlight that reliance on labour export exposes Filipino households not only to income volatility, but also to sudden disruptions in family life, employment trajectories, and long-term welfare — especially when migration plans are abruptly cut short or forced to end.

It can also be argued that remittance inflows tend to justify labour export as a long-standing government policy. This risks locking the economy into a low-productivity equilibrium, where labour migration serves as a pressure valve for weak domestic job creation. Remittances can raise reservation wages and dampen local labour supply in certain sectors, reinforcing structural weaknesses — particularly in agriculture and other labour-intensive activities — unless accompanied by robust domestic investment and industrial or service expansion. In addition, in 2024, nearly half of OFs were in “elementary occupations” such as domestic work.

Moving away from this system necessitates a strengthening of the domestic economy and labour market so that workers do not see the need to go abroad in the first place. Already, there is empirical evidence showing that in regions of the Philippines where wages are higher than elsewhere, remittances are lower. Yet, with a plethora of low-paying, low-productivity service-sector jobs, and a dearth of manufacturing and industrial activity, the current government has still not engaged in systematic rethinking and restructuring of the Philippine economy.

Finally, remittance inflows can be made more productive by nudging households to spend more on investments (e.g., education, health, housing) rather than just immediate consumption. Greater financial inclusion and literacy can help OFs’ families to maximise the remittances they receive.

Remittances remain critical for the Philippine economy. But it is high time that the economy diversified and relied on new growth drivers — not only because remittances are insufficient as a development strategy, but also because prolonged dependence on labour migration carries significant social and economic costs. This urgency is heightened by a rapidly changing global economy, where digitalisation and the green transition are reshaping production, employment, and sources of wealth in ways that offer opportunities for the Philippines to seize domestically rather than continue exporting its labour.

2026/23