MANILA, Philippines — President Rodrigo Duterte’s economic officials are bracing for the impact on consumer prices from Vladimir Putin’s continued assault on Ukraine, which has also led the World Bank to slightly lower its Gross Domestic Product (GDP) growth forecast for 2022 for the Philippines at 5.7 percent.
“As the pandemic subsides, the Philippine economy is now on the path to rapid recovery,” Finance Secretary Carlos Dominguez III told Filipino business leaders at the Philippine Economic Briefing on Tuesday. Partly thanks to the Philippine government’s direct response of 3 trillion pesos to fight COVID-19 so far, equivalent to 15.6% of GDP, Dominguez said the economy would grow by 7-9% This year.
“Our optimism is of course tempered by the uncertainties introduced by the conflict in Ukraine. We face a situation that will almost certainly increase inflation levels in all countries. This will be mainly due to the surge in oil and commodity prices,” Dominguez said.
“Rest assured, the Duterte administration is closely monitoring developments and doing everything possible to mitigate the impact of rising oil and food prices on our people,” he said. .
“This is done through cash grants for the bottom 50% of the population as well as subsidy and fuel rebate programs for the transportation sector and small farmers and fishers,” Dominguez added.
The government plans to distribute a total of 47.5 billion pesos in financial assistance to those hard hit by high fuel prices – 41.4 billion pesos in unconditional cash transfers worth 500 pesos per month per household, covering six months; 5 billion pesos in fuel subsidies for drivers of public utility vehicles (VUP); and 1.1 billion pesos in fuel rebates to agricultural producers.
At a press conference, Dominguez conceded that Russia’s invasion of Ukraine “will be a drag on our economy” even though it indirectly impacts the Philippines due to its low trade and foreign exposure. investments in the two countries at war.
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Philippines’ economic outlook remains optimistic amid risks primarily from the Russian-Ukrainian conflict, so an exit from the regulatory regime suited to the pandemic may not occur until the second half of this year at the earliest.
The World Bank’s chief economist for East Asia and the Pacific, Aaditya Mattoo, also told a press briefing on Tuesday that the Washington-based multilateral lender had cut its GDP growth forecast. for 2022 for the Philippines from 5.8% previously, remaining below the government’s target range.
Despite already “quite conservative” economic growth for the Philippines last December, Mattoo said “the reason for the downgrade is mainly the war in Ukraine.”
“We believe this is a shock to the whole world and it will also affect the Philippines as it is a net importer of fuel. It is a country that is exposed to the world both in terms of exports and finances, but these vulnerabilities in the Philippines are less than in other countries. It is not as dependent on exports as Vietnam, and it is not as dependent on external financing as Malaysia,” Mattoo explained.
“The Philippines is unusual – they don’t regulate prices and have been relatively successful in providing direct support to their people to deal with these price increases,” Mattoo said.
“But like all other countries in the region, the Philippines also has vulnerabilities. Energy imports account for more than 3% of GDP. Food imports are less so, around 0.5% of GDP. Metal imports are also important for the Philippines as they are also part of global value chains. These commodity price shocks will hit the Philippines,” Mattoo added.
“[The Philippines] was beginning to open due to the success of containing COVID-19. It is unfortunate that its opening coincides with further global uncertainties that may continue to hamper tourism,” Mattoo said.
For Mattoo, the Philippines was “an example of how shocks change the trade landscape”.
“The Philippines has relied on tourism, but it also has the ability to provide software and other backup services to the rest of the world. Digitization increases the possibility of providing more sophisticated services worldwide,” Mattoo said.
“One structural change that will be extremely plausible in the Philippines is to try to shift resources from sectors like tourism to these digitally delivered services and harness the enormous potential capacity it has to grow through the provision of these services. “, added Mattoo.
“But this will require investment in education to address the scars created by the pandemic, because in the Philippines schools have been closed for a very long time. And at the same time, investing in the broadband infrastructure, which is necessary to deliver these services,” Mattoo said.
“And finally to develop regulatory mechanisms, privacy law and other things that strike an appropriate balance between domestic needs and foreign regulatory requirements,” Mattoo added.
For Diokno, the Philippines’ economic prospects hinge on the implementation of the 2022 national budget of 5,020 billion pesos, the continued implementation of the “Build, Build, Build” infrastructure program, the implementation of the Business Recovery and Business Tax Incentives (Create) Act, and the adoption of the 10-point policy agenda to accelerate and sustain economic recovery from the pandemic, as outlined in Executive Order (EO) No. 166. The Head of PASB added that the recent adoption of the amended Public Utilities Law will boost economic growth.
“This economic outlook is underpinned in part by BSP’s efforts towards financial digitalization and inclusion, and the promotion of stable inflation and a financial environment conducive to economic growth,” Diokno said. .
Considering these elements, Diokno said that the BSP still considers the second half of the year for its normalization strategy, referring to an exit from an accommodating political regime intended to support the economy in times of pandemic.
The so-called “pandexit” strategy involves recalibrating monetary operations, unwinding liquidity provision, reducing monetary easing and building buffers in anticipation of future crises.
“The past six years have tested our resilience as a nation. But we came out better and stronger because we chose to build windmills that harnessed the winds of opportunity,” Diokno said.
To pave the way for a post-pandemic economic recovery, PASB is pushing for the institutionalization of policy reforms to address supply constraints of key commodities; enactment of the proposed Financial Consumer Protection Act and promotion of digital payments under the Digital Payments Act.
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