Philippines faces pressing economic storm clouds

MANILA, Philippines (Updated, Aug. 8, 2022) — The Philippines faces three pressing economic storm clouds, namely rising debt across countries, surging global inflation and policy normalization in advanced economies, according to former Bangko Sentral ng Pilipinas (BSP) governor Amando Tetangco Jr.

During the CEO Forum hosted by the Bankers Association of the Philippines (BAP), Tetangco said the dangerous trend of increased debt is present domestically and internationally.

“The slowdown of economic activity, combined with increased expenditure payout, has forced governments, including the Philippines to borrow from domestic and foreign sources,” he said.

Tetangco is the only BSP governor so far who served two terms between 2005 and 2017.

The government sees the country’s debt-to-gross domestic product (GDP) ratio hitting 60.9 percent or an all-time high of P13.42 trillion this year from a 16-year high of 60.5 percent or P11.73 trillion in 2021.

Finance Secretary Benjamin Diokno said during the recently concluded post-State of the Nation Address economic briefing that the Marcos administration aims to borrow less as the government has the fiscal capability to finance its ambitious projects.

During the first economic briefing under the Marcos administration, Diokno said the administration’s fiscal consolidation strategy aims to grow the economy and meet its macroeconomic targets by exercising fiscal discipline.

“Domestically, a plan for fiscal consolidation to improve the debt situation needs three key factors: continuous growth, balance in managing the effort to reduce fiscal deficits without undermining the recovery and sustaining the program to bring down debt ratios which can take years,” Tetangco said.

He also said that a clearly communicated medium-term plans based on specific measures and backed by strong fiscal frameworks are keys to establish credibility.

On the banking system, Tetangco said that earlier reforms allowed banks to enter the pandemic in a position of strength and helped the system absorb the headwinds while remaining sound and robust.

In fact, the former BSP chief said the banks’ capital adequacy and liquidity ratios have improved.

“The sound financial system enabled the effective intermediation of funds to productive sectors as outstanding loans quickly recovered after a brief period of contraction,” he said.

However, Tetangco said challenges remain and banks need to be resilient, more technologically advanced, more sustainable and inclusive than ever before.

Tetangco concluded that in addressing the complex nature of the risks that continue to confront the country, a whole-of-government approach, which calls for greater coordination of fiscal, monetary, and financial policies are needed.

For his part, former Socioeconomic Planning Secretary and director general of the National Economic and Development Authority Cielito Habito talked about ways to improve the current macroeconomic environment.

“We must put people first, maximize our land and water resources, and reshape our services,” Habito said.

Habito, who is currently an economics professor at the Ateneo de Manila University, shared his observations using his PiTiK (Presyo, Trabaho, Kita) method for the current performance of the economy.

With this method, Habito noted trends such as increased prices of commodities (Presyo), a boom in the agricultural and informal economy (Trabaho), and the rise of financial technology among consumers (Kita).

Habito underscored the importance of the agricultural sector, saying that the sector has experienced growth during the pandemic while other industries underperformed.

“To improve the sector, we can simply copy the example of our ASEAN peers in how they have managed their agricultural sectors and turned them into big export earners,” Habito said.

In his opening remarks, BAP President Antonio Moncupa Jr. said the forum aims to provide an opportunity to interact with thought leaders on relevant issues affecting the economy and banking industry.

“I am pretty sure we are all thinking about how the economy and consequently the banks will fare in the face of lingering COVID-19 virus, the global inflation, the resulting monetary tightening cycle, the Ukraine war, the recession talk in major economies that is getting louder by the day, the uncharacteristically negative outlook for China, the muscular dollar, and the expected slowdown in world economic growth,” Moncupa said.