BSP says Philippines 'insulated' from Russia-Ukraine fallout

MANILA, Philippines — The Philippines economy is insulated from fallout emanating from the Russia-Ukraine conflict as the Southeast Asian country has little economic and business dealings with the warring states, the Bangko Sentral ng Pilipinas said Monday.

"In brief, the Philippines’ geographic distance and limited economic link to both Russia and Ukraine, as well as its strong macroeconomic fundamentals, could insulate the domestic economy during the current risk-off episode," BSP Governor Benjamin Diokno said in a statement.

Diokno pointed out that the Philippines’ direct trade links with Russia and Ukraine are "negligible". Citing government data, Diokno said the Philippines’ exports to Russia, which is facing tough economic sanctions for its invasion of Ukraine, amounted to $120 million in 2021, or only 0.2% of the country's total exports last year. For Ukraine, total exports was a “measly” $5 million, he added.

Links to investments, remittances, and tourism were likewise limited, according to Diokno.

But like several countries, the BSP chief said the Philippines, a net oil importer, is not immune to the war’s impact on oil prices. As world oil prices hit 14-year highs, the central bank said domestic inflation could surge by 4.7% this year under a worst-case scenario that prices in the international market reach $140 per barrel for several months. If this forecast is realized, the BSP would miss its 2-4% inflation target for the second straight year.

After a massive hike last week, consumers are now bracing for another big-time oil price increase to the tune of P8 for unleaded gasoline and P13 for diesel fuel. The high pump prices have already prompted transport groups to file for fare hikes and labor groups to ask for an increase in the daily minimum wage, which was last adjusted four years ago.

In a research note on February 24, global investment bank Nomura said the Philippine economy could shed 0.07 percentage points for every 10% rise in global oil prices due to its high dependence on oil imports. This would make the country among the “biggest losers” in Asia together with India and Thailand amid the escalating war in Europe, Nomura said.

During its last policy meeting on February 17, the BSP projected inflation to average 3.7% in 2022 and 3.3% in 2023.