Philippines at risk of food, energy volatility

MANILA, Philippines — The Philippines is one of the countries in Asia-Pacific highly vulnerable to volatile food and energy prices as the Russia-Ukraine war continues to disrupt the supply and raise the cost of agricultural products as well as fertilizers and other inputs, according to Moody’s Investors Service.

In a report, the debt watcher said the Philippines, India, Thailand and Vietnam have high energy and food weights in the consumer price index (CPI) baskets.

“Net import dependence in key cereals, such as rice and wheat, are also high in the Philippines,” Moody’s said.

The credit rating agency said food security has become a major concern for governments in Asia-Pacific as the Russia-Ukraine war disrupts the supply and raises the cost of agricultural products, especially cereals and vegetable oils, as well as fertilizers and other agricultural inputs.

It said that harvests this year in some of the region’s major producers would also be hit by other developments, for instance heat waves in India, compounding the pressures arising from Russia’s invasion of Ukraine.

Moody’ said Asia-Pacific has less direct exposure to food supplies from Russia and Ukraine than other regions, such as the Middle East and Africa, particularly to supplies of wheat.

According to the debt watcher, food importers’ current account balances will also deteriorate if food prices remain elevated.

It said the Philippines, India, Thailand and Vietnam are particularly vulnerable to inflation in basic necessities.

“Net food import dependence in key cereals consumed in Asia, such as rice and wheat, is high in the Philippines as indicated by its trade deficits,” Moody’s said.

Latest data from the Philippine Statistics Authority (PSA) showed that the country’s trade deficit hit an all-time high of $5.67 billion as imports continues to outpace the growth of exports amid the continued reopening of the economy from strict COVID quarantine and lockdown protocols.

Data showed exports rose by 6.2 percent to $6.3 billion in May, while imports surged by 31.4 percent to $11.98 billion.

Although Asia-Pacific economies have less exposure than regions such as the Middle East and Africa, Moody’s said food shocks still have the potential to increase social discontent and trade protectionism.

“Policy responses to recent food price shocks will have long-term credit implications for sovereigns and some nonfinancial companies,” it said.

The debt watcher said there is room to expand regional cooperation and promote efficiency in food production and trade.

“Agricultural productivity in South Asia and Southeast Asia lags that of East Asia. Investments in agriculture supply chains and improving crop yields will be credit positive in the long run. Greater international cooperation to expand existing programs will also be positive for the region,” it said.

Inflation in the Philippines averaged 4.4 percent in the first half, exceeding the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP), after accelerating to 6.1 percent in June from 5.4 percent in May.

To curb rising inflationary pressures and spillovers from other countries, the BSP has so far raised interest rates by 125 basis points, including the huge 75-basis- point hike during a surprise off-cycle rate setting meeting on July 14.