Philippines on its way to full recovery – BSP

MANILA, Philippines — The Philippines is on its way to a full economic recovery from a recession caused by the pandemic despite the recent surge in cases in China as well as the impact of Russia’s invasion of Ukraine, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

In an interview with CNN international business correspondent Richard Quest, Diokno said the Philippines is looking at a faster gross domestic product (GDP) growth of seven to nine percent this year after emerging from the pandemic-induced recession with a 5.7 percent expansion last year.

The country slipped into recession in 2020 with a 9.6 percent contraction as the economy stalled due to the strict implementation of COVID quarantine and lockdown protocols.

“The Philippines is actually on its way to a full recovery from the recession in 2020,” Diokno said.

The BSP chief told the anchor of Quest Means Business that the impact of the Russia-Ukraine war is indirect, through higher oil prices and eventually faster inflation.

“We have factored that in our most recent analysis and it will adjust upward our inflation to maybe around 4.3 percent,” Diokno said.

Inflation accelerated to a six-month high of four percent in March, the upper end of the BSP’s two to four percent target from three percent in February and January.

This brought the average inflation to 3.6 percent in the first quarter.

The BSP sees inflation remaining elevated and settling above the central bank’s target range in the second half until the first quarter of next year due to higher global oil and non-oil prices.

This could prompt the BSP to start normalizing in the second half by hiking interest rates after keeping the level at record lows since 2020 when it delivered an aggressive 200-basis-point rate cut as part of its COVID response measures.

Diokno is in Washington to attend the 2022 Spring Meetings of the International Monetary Fund (IMF) and the World Bank Group.

In separate discussions with institutional investors in conferences organized by Barclays, Bank of America Securities, and J.P. Morgan, Diokno highlighted the country’s manageable inflation, stable banking system and robust external position.

After settling at around 4.3 percent this year, Diokno told investors that inflation may ease back to within the two to four percent target at 3.6 percent next year.

He said the Philippine banking system remained sound and stable throughout the pandemic, with credit and capital conditions supportive of growth and well above regulatory requirements.

The country’s external position remains strong with gross international reserves of $108.5 billion as of end-March.    This is equivalent to 9.6 months’ worth of imports of goods and payments of services, and manageable external debt that stood at 27 percent of GDP in 2021.

The country’s usual sources of foreign exchange also continued to rise in 2021 – remittances from overseas Filipino workers (OFWs) increased by 5.1 percent; business process outsourcing receipts grew by 9.5 percent; and net foreign direct investments jumped by 54.2 percent.

In support of the Philippines’ post-pandemic recovery, the BSP has carried out a wide range of monetary and regulatory measures that unleashed as much as P2.3 trillion into the financial system.

These included enhancing market confidence and ensuring adequate liquidity and credit, complementing government programs through extraordinary liquidity measures, and implementing regulatory and operational relief measures.

“All these have contributed to helping the Philippine economy get back on track in 2022,” Diokno said.