The Philippines will likely have a bumpy ride this year given external volatilities but strong fundamentals will help limit the shocks, economic managers claimed.
Officials of the Department of Finance, National Economic and Development Authority (NEDA) and the Department of Budget and Management expressed confidence that the Philippines would be able withstand a slowdown in China, heightened market volatility and tighter global financing conditions, sharp US dollar gains, and weaker-than-expected high-income country growth and trade.
“Despite the ongoing volatilities and increasing uncertainty, Philippine growth prospects remain robust. Recent forecasts by the World Bank point out that in the region, the Philippines is among the few economies with strong growth potential,” Finance Undersecretary Gil Beltran said.
The World Bank expects Philippine gross domestic product (GDP) to grow by 6.4 percent this year, with the expansion to remain above 6 percent in the next three years.
Beltran stressed that strong macroeconomic fundamentals were instrumental in buttressing the Philippines and would continue to do so. He added that prudent macroeconomic management also enabled the country to embark on fiscal deleveraging and create wider fiscal space, build sizable reserves and minimize exposure to foreign debt, stabilize consumer prices and strengthen the banking system.
“These developments will afford fiscal and monetary authorities ample room for maneuver and, to some extent, provide insulation for the country from external shocks as they arise,” he added.
Beltran noted that the country’s debt-to-GDP ratio went down from 74.4 percent in 2004 to 45.4 percent percent in 2014, translating into wider fiscal space. Meanwhile, the external debt-to-GDP ratio declined by half from 35.4 percent in 2004 to less than 16 percent at the end of the third quarter of 2015, which reduced the country’s exposure to foreign exchange volatilities. Gross international reserves are also sizable, allowing the country to have an import cover of 10.3 months as of the end of last year.
Providing more stability in the economy, Beltran said, are stable consumer prices, with inflation having averaged 1.4 percent in 2015.
The banking sector is also in strong footing to absorb shocks and mitigate risks, with the gross non-performing loans-to-gross total loan portfolio of universal and commercial banks at 1.82 percent as of September 2015. As of June 2015, meanwhile, the banks’ consolidated capital adequacy ratio topped 16.42 percent, double the minimum recommended by Basel III.
Lending by banks has also been very conservative as the loans-to-gross deposits ratio was only 67.7 percent by the end of October 2015.
“Overall, growth prospects of the Philippines remain bright and robust. It’s just that the country will have a bumpy ride ahead in the face of financial market volatility,” Beltran said.
For his part, Socioeconomic Planning Secretary Arsenio Balisacan said the country’s current account position was diverse and made the Philippines less sensitive to shocks. Balisacan, the NEDA director general, also said that a big part of the robust current account was comprised of remittances coming from overseas Filipino workers (OFWs).
“The good thing about the Philippines is that the structure of the economy has changed lot,” he said.
Sharing the same view was Budget Secretary Florencio Abad, who said OFW remittances and revenues from business process outsourcing (BPO) were insulating the Philippines from foreign exchange volatility.
“We have the OFW remittances and BPO revenues plus the fact that internally, we continue to grow . . . compared to the rest of the world,” Abad said.
The current account is major component of the country’s balance of payments. It consists of transactions in goods, services, primary income and secondary in income. It measures the net transfer of real resources between the domestic economy and the rest of the world.
As of the third quarter of last year, the Philippines’ current account was at a surplus of $658 million, equivalent to 1 percent of GDP.