The National Economic and Development Authority (NEDA) on Tuesday said the Brexit will have minimal direct effect on the Philippine economy, but that the country would have to be watchful for indirect effects coming from the impact on the European Union (EU) and the wider global economy.
In a statement, NEDA downplayed the impact on the Philippines of the exit of the United Kingdom (UK) from the EU, citing the country’s strong macroeconomic fundamentals.
“The direct effect of Brexit does not seem substantial, even as we expect that domestic financial markets will experience volatility and huge swings in capital flows in the short term due to uncertainty. Despite this knee-jerk reaction, the economy stands on solid footing given its strong macroeconomic fundamentals,” said outgoing Socioeconomic Planning Secre tary Emmanuel Esguerra.
NEDA noted that the UK economy accounts for 2.4 percent of world gross domestic product in purchasing power parity terms in 2015, and direct Philippine exposure to the UK economy is minimal.
Merchandise exports and imports between the UK and the Philippines is small, accounting for only 0.9 percent and 0.5 percent of the total from 2010 to 2015, respectively.
“However, the indirect effects via its impact on the EU bloc and the knock-on effects on the rest of the global economy bear watching. Diversification of export markets and products, increasing competitiveness, and strengthening domestic demand would therefore be important,” Esguerra, who is also NEDA director general, said.
In terms of external debt, the agency said borrowings from EU countries, primarily the UK, France, and Germany amounted to $6.8 billion, which made up only 8.8 percent of the country’s total external debt.
The country’s debt stock remains largely denominated in US dollars (63.0 percent) and Japanese yen (12.4 percent).
“As such, the depreciation of the euro and UK pound is not expected to have significant positive effects on debt service,” said Esguerra.
In terms of investments, NEDA said net equity placements from the UK accounted for 4.9 percent, on average, from 2010-2015. But he also said it was worth noting the jump to a 20.2-percent share in 2015.