Philippines on track towards strong recovery

MANILA, Philippines — Philippine economic managers are confident that the country is on track towards a strong recovery from the impact of the global health crisis.

Budget Secretary Amenah Pangandaman shared her optimism during the “PH Dialogue: Economic Performance and Outlook” co-organized by the Bangko Sentral ng Pilipinas’ Investor Relations Group (BSP-IRG), the Philippine Embassy and Philippine Trade and Investment Center, and the Department of Finance (DOF).

“This is not without basis. Businesses, consumers, and the government all agree that the Philippines is on track towards a strong recovery,” Pangandaman said.

The head of the Department of Budget and Management (DBM)  then presented the budget priorities for 2023 to address the continuing external challenges to recovery and economic transformation.

“We are committed to investing in our people through major social and human development expenditures,” Pangandaman said, sharing the allotted budget for education, social protection, and health, among others.

Economic managers engaged with US-based business and financial communities during a roundtable discussion on the Philippines’ strong economic recovery and robust outlook.

They also discussed the new administration’s 8-Point Socioeconomic Agenda - a follow-through of the Philippine Economic Briefings (PEB) held in Singapore and in New York last September.

Economy strong enough

The Philippine economy is strong enough to absorb rate hikes aimed at curbing rising inflationary pressures and stabilizing the peso, according to the Bangko Sentral ng Pilipinas (BSP).

“The Philippine economy has problems but it can navigate in this uncertain times,” BSP Governor Felipe Medalla told participants of the roundtable discussion.

Medalla said a 25-basis point increase translates to about a five basis points cut in growth rates.

“Fortunately, the economy is strong enough to withstand the rate increases,” Medalla said during the Philippine Dialogue held on the sidelines of the International Monetary Fund – World Bank Annual Meetings.

The Philippines was able to sustain its strong economic recovery from the impact of the COVID-19 pandemic.

After bouncing back from the pandemic-induced recession with a gross domestic product (GDP) growth of 5.7 percent last year, the economy expanded by 7.8 percent in the first half of the year, exceeding the 6.5 to 7.5 percent target penned by economic managers.

The country slipped into recession with a GDP contraction of 9.6 percent in 2020 as the economy stalled due to strict COVID-19 quarantine and lockdown protocols.

To tame inflation and stabilize the peso, the central bank’s Monetary Board has so far raised key policy rates by 225 basis points, bringing the overnight reverse repurchase rate to 4.25 percent or the highest since the 4.50 percent in June 2020.

Medalla pointed out that the hawkish US Federal Reserve that delivered aggressive rate hikes to fight inflation, the impact of the Russia-Ukraine war, and the weakening peso has prompted the BSP to withdraw COVID-19 support measures earlier than expected.

Inflation averaged 5.1 percent in the first nine months of the year, exceeding the BSP’s two to four percent target range after accelerating to 6.9 percent in September from 6.3 percent in August.

The BSP Monetary Board inflation sees inflation exceeding the target range and average 5.6 instead of 5.4 percent for this year and 4.1 instead of four percent for next year.

With the US dollar serving as a safe haven amid the uncertainties, the peso has weakened by about 15.7 percent so far this year to touch an all-time low of 59 to $1 several times this month.

Match US Fed hike point by point

The BSP chief said there is now a need to match the US Fed hikes point by point by point as the rate differential has become too narrow.

“Given our inflation levels, given what’s happening to the exchange rate. We, in this case, must need to respond to the Fed point by point,” Medalla said.

For one, the BSP chief pointed out that the Monetary Board is likely to deliver another 75-basis point hike in its next rate-setting meeting scheduled on Nov. 17 to tame inflation and stabilize the peso.

“If they do 75 (bps), we do 75. If they do 50, we do 50. If they do 100, we do 100,” Medalla added.

Fully prepared to address risks

During his keynote message, Finance Secretary Benjamin Diokno said that the Philippines is fully prepared to address ongoing risks to economy.

Diokno gave investors the green light to do business in the Philippines while the government is employing the necessary policies and reforms to address ongoing risks to the economy.

“The Philippines’ high economic activity and rising investor confidence signal a rapid recovery and robust economic growth. [W]hile our prospects are bright, the Philippines is employing the necessary policy levers to address ongoing risks,” Diokno said.

In his dialogue, the DOF chief noted that the pandemic-induced socioeconomic scarring, unpredictable geopolitical tensions, and elevated inflation levels globally are areas where the country needs to remain vigilant.

According to Diokno, the continued timely implementation of government measures is crucial in mitigating the impact of persistent supply-side pressures on food and other commodity prices.

“The government has intensified measures to help increase the domestic supply by ramping up local production, ensuring timely importation of goods, fertilizers, and raw materials, and improving distribution efficiency,” Diokno added.

The Finance secretary detailed the structural reforms that would attract beneficial foreign investments and create high-value jobs in the country.

The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and amendments to the Public Service Act, Retail Trade Liberalization Act, and Foreign Investments Act have paved the way for the Philippines to be a strong competitor in the region.

On top of that, the Marcos administration is also increasing its efforts to guarantee adequate power supply to enable the economy to continually function.

“I’ve served four Presidents, and I think this is our—the Philippines’—moment. So come to Manila,” Diokno said in parting.

Sarah Lynne Daway-Ducanes, assistant secretary for the Planning Group of the National Economic and Development Authority (NEDA), presented the Philippine Development Plan, growth drivers, and outlook.