(Part 1)
Last year, total personal remittances from overseas Filipino workers (OFWs) to the Philippines reached $38.34 billion, representing a 3% increase from the $37.21 billion recorded in 2023. Cash remittances (sent through banks) totaled $34.49 billion, up 3% from $33.49 billion in 2023. These remittances constituted some 8.3% of GDP and 7.4% of GNI in 2024. There are unofficial estimates that the total remittances annually can reach $40 billion or more if we include what the returning workers do not channel through banks but actually carry them in actual currencies or goods (pasalubong).
The sources by country of these remittances in 2024 were the United States (40.6%), Singapore (7.2%), Saudi Arabia (6.4%), Japan (4.9%), the United Kingdom (4.7%), Canada (3.6%), Qatar (2.8%) Taiwan (2.7%), and South Korea (2.5%). The large amounts coming from the US can be partly explained by the practice of OFWs, especially those from the Middle East, of routing their remittances through US-based correspondent banks. Over the last 20 years, the annual increase of OFW remittances has averaged 3% to 5% despite global crises. In fact, during the pandemic, when hundreds of thousands of Filipino workers were sent home from the Middle East, the decline in OFW remittances was less than 1%, demonstrating how resilient this source of GDP growth for the Philippines is.
Once again, this year, there are threats to OFW remittances as a result of the expected slowdown in the global economy emanating mainly from the anti-trade policies being implemented by the Trump Administration of the US. As mentioned above, the mere slowdown of the global economy in the past hardly affected the flow of OFW remittances to the Philippines. Growth every year averaged at least 3%, with a high of 6% during some years. One explanation given for the resilience of this sector is the positive response of the OFWs to the financial difficulties their relatives face during challenging times. The OFWs become more generous and dip into their savings when times get more difficult for their relatives, increasing their remittances.
What about the Trump Administration’s inclusion of a remittance tax in the so-called “One Big Beautiful Bill Act (OBBBA)” which President Donald Trump signed into law on July 4? The House version, which was passed on May 22, included a 3.5% excise tax on remittances after Dec. 31, 2025, targeting transfers sent by non-US citizens. On July 1, the Senate version reduced the tax to 1%, applying only to cash remittances (not bank/credit/debt transfers). The tax will apply to any sender, including US citizens, but exempts transfers from US bank accounts or debit/credit cards under the Bank Secrecy Act. Remittances from overseas Filipino workers would not be exempt. OFWs sending cash, money orders, or cashier’s checks — and not via US bank or debit/credit cards — would incur the 1% excise tax under the Senate version. If they use US-based bank or card transfers, those would not be taxed.
There is consensus among economists that the negative impact on Philippine GDP will be minimal. To illustrate, a 1% surcharge automatically withheld at the counter would mean that $500 cash sent would cost an extra $5. If the Senate version was retained in the reconciled bill which President Trump signed, remittances of OFWs will be generally exempt because they already use Zelle-to-bank or remittance apps from US accounts. Filipinos are digitally advanced and would be expected to migrate to these channels. Also, exempt fintechs (e.g., Remitly, Wise, etc.) would likely highlight their advantages to customers. Surveys by the Bangko Sentral ng Pilipinas (BSP) and the Philippine Institute for Development Studies (PIDS) show cost-sensitive OFWs trim transfer fees when all-in fees break 5%. An extra 1% on cash would push the average US-PH corridor cost from 4.4% to 5.4%. Finally, as Secretary of Finance Ralph Recto observed, Filipinos are generally clever enough to avoid taxes by just carrying cash with them without being detected. Given all these considerations, the so-called OBBBA will pose no significant threat to OFW remittances this year and in the coming years.
The OFW phenomenon is part and parcel of the long history of the Filipino people as a nation. Here, I will borrow extensively from a Magisterial Lecture given by Dr. Veronica Ramirez, Full Professor of the University of Asia and the Pacific (UA&P), who is one of the foremost scholars on this very important topic. For many years she occupied the Professorial and Research Chair on OFWs that was endowed by the Bank of the Philippine Islands to the UA&P. In a lecture based on both her personal experiences interacting with OFWs all over the world and her scholarly research, she wrote a paper which is to be delivered as a Magisterial Lecture at the UA&P some time in August. For the benefit of all who are trying to understand the enduring role of the OFWs in Philippine society, I will summarize below some of her findings culled from her multidisciplinary research involving history, economics, the arts and politics.
“The OFW phenomenon started with the Galleon Trade between the Philippines and Mexico in the 16th Century. In 1790, the Philippines opened its doors to world trade. Filipino men were recruited to work in the galleon ships that traveled to Acapulco, Mexico. Hundreds of islanders from the Philippine Archipelago joined the ships. Similar to what is still happening in both North America and Europe today, the islanders, upon reaching the areas of Mexico that were under US jurisdiction, decided to jump ship to migrate to North America. It can be said that these were the first overseas ‘Filipinos.’
“In the 1900s, when the Philippines was a colony of the United States, sugar farmworkers from the Philippine Archipelago, called sakadas in the local dialect, traveled to Hawaii in order to work in the sugar plantations. There were also the knowledge workers, scholars in different disciplines, who went to the US to study under scholarship programs of the US Government. In fact, as late as the 1960s, I was able to study at Harvard University as a Fullbright scholar. Since Fullbright and other scholars had to find some part-time jobs to make both ends meet, they could also be considered as overseas workers.
“In the Filipino migration that followed through the centuries, three categories emerged: Permanent migrants, i.e., those immigrants who are legal permanent residents, and naturalized citizens of their host country; Temporary migrants, those documented land-based and sea-based workers and others who stayed under contract, or those with accompanying dependents (these are the ones who are called overseas Filipino workers); and the last group are Irregular workers without valid work permits but were recruited by unscrupulous recruitment agencies or who may be overstaying workers or tourists.” n
(To be continued.)
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.
