Inflation slowed to 3.9% in December, settling within the central bank’s 2-4% target range for the first time in nearly two years, amid easing prices of food and utilities.

Preliminary data from the Philippine Statistics Authority (PSA) showed the overall year on year increase in prices of widely used goods and services eased to 3.9% in December, from 4.1% in November and 8.1% a year ago.

December’s inflation print was the slowest reading in 22 months or since the 3% reading in February 2022.

The latest consumer price index (CPI) is a tad lower than the 4% median estimate in a BusinessWorld poll last week. It also settled within the 3.6% to 4.4% forecast for the month given by the Bangko Sentral ng Pilipinas (BSP).

However, inflation averaged 6% for 2023, slightly higher than the 5.8% in 2022. This marked the second straight year that inflation breached the BSP’s 2-4% target band.

The 6% print was the highest in 14 years or since the 8.2% full-year average in 2008, at the height of the global financial crisis.

“The latest inflation outturn is consistent with the BSP’s projections that inflation will likely moderate in the near term due to easing supply-side price pressures and negative base effects,” the BSP said in a statement.

Core inflation, which discounted volatile prices of food and fuel, stood at 4.4% percent in December — slower than the previous month’s 4.7% and the 6.9% a year earlier.

For the entire year, core inflation averaged 6.6%, much faster than the 3.9% print in 2022.

At a press briefing, National Statistician Claire Dennis S. Mapa said December inflation print was due mainly the 1.5% growth in prices of housing, water, electricity, gas and other fuels, which was slower than the 2.5% in November.

This was followed by the 5.4% rise in the food and non-alcoholic beverages index, easing from 5.7% in November.

Food inflation alone went down to 5.5% in December, from 5.8% in November and 10.6% a year ago.

However, rice inflation quickened to 19.6% in December from 15.8% in November. It was also the most significant contributor to December inflation, adding 1.7 percentage points (ppt) to the headline print.

At 19.6%, rice inflation was the highest since the 22.9% recorded in March 2009.

Mr. Mapa said the average price of regular milled rice last month went up to P48.50 per kilo from P46.73 per kilo in November. The average price of well-milled rice also rose to P53.82 per kilo in December from an average of P51.99 per kilo a month earlier.

Year on year, prices of regular milled rice and well-milled rice grew by 22.3% and 22.4%, respectively.

In a statement, the National Economic and Development Authority (NEDA) said the extension of the Executive Order (EO) No. 50, which extended the Most Favored Nation (MFN) reduced tariff rates for key agricultural commodities like pork, corn, and rice, is crucial to ensure a stable food supply in the Philippines.

“Amid an uptrend in international rice prices and the expected negative impact of the El Niño phenomenon, the Interagency Committee on Inflation and Market Outlook will closely monitor the situation and propose further temporary tariff adjustments, if necessary,” NEDA Secretary Arsenio M. Balisacan said.

“We will also push for trade facilitation measures to reduce other non-tariff barriers. While our medium-term objective to boost agricultural productivity remains, it is important to augment domestic supply to ease inflationary pressures on consumers, particularly those in low-income households,” he added.

Meanwhile, transport inflation inched up 0.4% in December, reversal from the 0.8% contraction in November.

PSA’s Mr. Mapa said passenger transport by road such as jeepney and tricycle fares increased 2.9% in December from 2.4% a month prior.

Prices of diesel decreased by 13% year on year, but lower than the 18.4% decline in November. Gasoline also recorded a -3.9% inflation rate from the -4.8% seen in the previous month.

In December alone, pump price adjustments stood at a net increase of P0.3 per liter for gasoline. Diesel and kerosene prices had a net decrease of P0.35 and P0.51 respectively.

Meanwhile, inflation for the bottom 30% income households edged higher to 5% in December from 4.9% in a month prior. Year to date, the inflation rate for this income group stood at 6.7%.

Inflation in the National Capital Region (NCR) decelerated to 3.5% in December from the 4.2% print in November and 7.6% a year ago.

Outside of NCR, consumer prices slowed to 4% from 4.1% in November and 8.2% in December 2022.

STILL HAWKISH OUTLOOK

The BSP said risks to the inflation outlook remains significantly on the upside, citing possible inflationary pressures from higher transport charges, increased electricity rates, rising oil prices, and elevated food prices due to strong El Niño conditions.

“Looking ahead, the Monetary Board deems it necessary to keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident,” the BSP said.

“The BSP will continue to monitor inflation expectations and second-round effects and take appropriate action as needed to bring inflation back to the target, in keeping with the BSP’s price stability mandate,” it added.

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris Dacanay in a note said export prices of rice increased to $659 per metric ton amid lingering El Niño risks to supply.

“Not only is this the highest since 2008, but we have yet to see global rice prices peak. And with rice being a heavy component of the Philippines’ CPI basket, elevated export prices will likely put a floor under how much inflation can moderate,” he said.

Inflation may also quicken to above the 2-4% target in the second quarter due to unfavorable base effects.

“But once these base effects wear off, we expect headline CPI to immediately ease on a year-on-year basis and average within 3-3.5% in the second half,” he said.

“Keeping inflation more manageable is the extension of EO 50, which rolls over the low tariff rates for key food items such as rice and pork. The BSP’s tight monetary stance will also continue to stem any price pressures coming from core items such as rent and housing,” he said.

HSBC lowered its full-year headline inflation forecast to 3.5% in 2024 from 4.1% previously.

“The BSP now has more leg room to adjust monetary policy with the inflation outlook more benign. The larger concern now is the differential between BSP and Fed rates,” Mr. Dacanay said.

Mr. Dacanay said he expects the BSP to cut policy rates alongside the US Fed starting second quarter this year.

“We then expect the BSP to clock a similar pace as the Fed by cutting its policy rate by 25bp in each quarter until the benchmark rate reaches 5% in the third quarter of 2025,” he added.

The BSP has kept its benchmark interest rate unchanged at a 16-year high of 6.5% during its December policy meeting. This was after it hiked 450 basis points (bps) from May 2022 to October 2023 to tame inflation.

On the other hand, the US Federal Reserve kept borrowing costs unchanged at 5.25-5.5% in December, following the 525-bp rate hikes it did from March 2022 to July 2023.

Citi Economist for the Philippines Nalin Chutchotitham said even though upside risks remain, inflation expectations are now better anchored.

“We expect the BSP to maintain its policy rate through the first half of 2024, to help anchor inflation at around the mid-point of the policy target. We expect gradual rate cuts from third quarter onwards as inflation shows a steady declining trend,” she said.

Ms. Chutchotitham also noted that the BSP will likely maintain at least a 50-bp interest rate gap with the Fed to help ensure the peso’s stability against the dollar.

“We forecast the key rate at 5.5% at end-2024, and at 4.5% at end-2025,” she said.

The Monetary Board is scheduled to have its first policy review this year on Feb. 15.

THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to limit its foreign exchange intervention on markets by finalizing a new framework this year, its chief said on Thursday.

In his first public event this year at the Rotary Club’s weekly meeting, BSP Governor Eli M. Remolona, Jr. said the central bank aims to make the peso more competitive and reduce restrictions in the foreign exchange market.

“We’re developing a framework for intervention… We think intervention should only happen during times of stress. It’s meant to contain stress,” he said.

Mr. Remolona told reporters that BSP Senior Assistant Governor Edna C. Villa will head the central bank’s Financial Markets department, replacing retired Ma. Ramona Gertrudes D.T. Santiago. 

The foreign exchange framework will also be implemented this year, he said.

The BSP chief has instructed Ms. Villa to identify the Philippines’ peers in the region when it comes to movements against the dollar.

“We want to do things in the right way. We want to do things based on fundamentals and also based on what we know is going on in the markets,” he said.

Meanwhile, Mr. Remolona noted that October 2022 was a stressful episode for the central bank and the foreign exchange market. 

“Those are the events in which we want to intervene,” he said. “I think we’ve been intervening a bit too much. If it’s about containing stress, that also means intervention should be infrequent.”

In October 2022, the peso reached its record low of P59 against the dollar. This also caused the peso to add to inflationary pressures during that time, which prompted the BSP to intervene in the foreign exchange market and raise interest rates. 

The peso has since rebounded to the P55 level, closing at P55.50 against the dollar on Thursday.

To tame inflation, the Monetary Board hiked borrowing costs by 450 basis points (bps) from May 2022 to October 2023. This has brought the key interest rate to 6.5%, its highest in 16 years.

Mr. Remolona said the current 6.5% policy rate is still appropriate to ensure growth and tame inflation at the same time. 

“People say we’ve been tightening too much… that’s a very difficult challenge because we want to make sure that we don’t tighten unnecessarily,” he said.

However, the BSP chief said there are still upside risks to inflation, but he is hoping that inflation will settle within the 2-4% target range for most of 2024.

BSP sees inflation settling at an average of 6% in 2023, before easing to 3.7% in 2024 and 3.2% in 2025.

A BusinessWorld poll last week yielded a median estimate of 4% for December headline inflation, within the BSP’s 3.6-4.4% forecast for the month. This is slightly slower than 4.1% in November but significantly below 8.1% in December 2022.

If realized, December could mark the first time that inflation met the central bank’s 2-4% target after 20 straight months. It would also be the slowest since the 3% print in February 2022.

This would bring the 2023 inflation average to 6%, matching the BSP’s baseline forecast.

The Philippine Statistics Authority will release December consumer price index data on Friday.

SALARY INCREASES are expected to be higher in the Philippines this year, amid growing demand for professionals and elevated inflation, according to global professional services firm Mercer.

In its Total Remuneration Survey conducted last year, Mercer said Philippine-based organizations projected a median salary hike of 6.2% in 2024, slightly higher than the actual 6% salary increase last year. 

It is also above the projected average median salary increase of 5.2% in Asia for 2024.

“The projected hike in median salary increment can be attributed to factors such as the rising demand for skilled professionals, the need to attract and retain top talent in a fiercely competitive job market, and persistent inflationary pressures,” Mercer said in a statement.

The expected median salary increase in the Philippines is the fourth highest in the region, just behind India (9.3%), Vietnam (7%), and Indonesia (6.5%).

The country surpassed the projected median salary increments in Mainland China (5.2%), Malaysia (5.1%), Thailand (4.7%), South Korea (4.4%), and Singapore (4.2%).

Meanwhile, Hong Kong SAR (2.6%), Taiwan (3.8%) and Japan (3.9%) reported the lowest projected median salary increments in the region.

Floriza I. Molon, business leader at Mercer Philippines, said that most industries are seen to ramp up hiring as businesses expand this year.

“The Philippines is poised for economic growth despite some global headwinds. Some industries will continue to hire as businesses, particularly in shared services and outsourcing industry, retail and consumer sectors expand,” Ms. Molon said.

Mercer said salary increases will likely be consistent in most industries this year, as firms seek to retain talent.

The energy sector is seen to raise salaries by 7% this year, the highest among industries in the Philippines, data from Mercer showed. This is the same as the 7% hike implemented in 2023.

The high-technology industry is expected to hike salaries by 6.8%, a tad higher than the actual 6.5% increase last year.

Firms in retail and wholesale will increase wages by 6.7%, slightly higher than last year’s 6.5%.

Consumer goods firms will hike wages by 6.5%, faster than the 6% implemented last year.

“Besides compensation, companies would need to reassess their total rewards programs focusing on the employee benefits and work experience,” Ms. Molon said.

Citing Mercer Global Talent Trends 2023 report, Ms. Molon said that employees prefer to stay with organizations that offer job security, work flexibility and high pay.

“Employees are also expecting benefits and career opportunities within their organizations. The ability to provide these creates a more holistic and strategic management on talent in the workplace,” she added.

China Banking Corp. Chief Economist Domini S. Velasquez said businesses will likely provide higher salary increases as inflation remains elevated.

The Bangko Sentral ng Pilipinas (BSP) expected inflation to have averaged 6% in 2023. It sees inflation averaging 3.7% in 2024.

“The rise in inflation could prompt businesses to provide higher compensation to offset the increased cost of living for Filipinos,” Ms. Velasquez said in a Viber message.

“Moreover, the approved minimum wage hikes in 2023 would further contribute to the upward trend in average wages for individuals earning above the minimum wage,” she added.

Ms. Velasquez said the wage increases should not “exacerbate” inflation and be balanced out by improving worker productivity.

“One key factor in achieving this balance is the improvement of worker productivity. As businesses recover from the impact of the pandemic and economic activities gradually increase, it is anticipated that Filipino workers will demonstrate higher productivity levels,” she said.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that implementing salary increases will not only allow businesses to be competitive but also allow the Philippines to catch up with its regional peers in terms of per capita income.

“Given the fact that the Philippines is still among the fastest-growing economies in Asia, it still has relatively lower per capita incomes and is yet to catch up with other neighboring countries,” he said.

“Essentially the demand-supply balance of talent is a major determinant for wage growth in view of local or overseas employment choices for local talents,” he added. — Justine Irish D. Tabile

THE MAHARLIKA Investment Corp. (MIC), which is tasked to oversee the Philippines’ first sovereign wealth fund, is looking at potential investments in key sectors such as infrastructure, energy and transportation.

The MIC held its first board meeting on Wednesday, as it seeks to fully operationalize the Maharlika Investment Fund (MIF), according to a statement from the Department of Finance (DoF).

MIC President and Chief Executive Officer (CEO) Rafael Jose D. Consing, Jr. said that the wealth fund could potentially invest in the power, agroforestry industrial urbanization, mineral processing, tourism, transportation, and aviation sectors.

The MIC, which was established under Republic Act (RA) No. 11954, is responsible for mobilizing and utilizing the country’s first sovereign wealth fund for investments in transactions that would generate optimal returns.

“I look forward to your cooperation and support as we work together in mobilizing greater investments in the country’s growth-enhancing sectors, while upholding the highest standards of accountability, fiscal responsibility, and good governance,” Finance Secretary Benjamin E. Diokno told the MIC board during the meeting. He sits as the board’s chairperson in an ex-officio capacity.

“The enactment of the Maharlika Investment Fund complements recent policy initiatives, such as the new public-private partnership policy framework, the approval of 197 high-impact infrastructure flagship projects, and liberalization policies that have further opened the Philippines to foreign investments in key sectors,” Mr. Diokno added.

During the meeting, the board approved the presented MIC’s capitalization scheme amounting to P125 billion.

Under the law, state banks Land Bank of the Philippines (LANDBANK) and Development Bank of the Philippines (DBP) are required to contribute P50 billion and P25 billion, respectively, to the initial capital of the fund.

The National Government is also being counted on to contribute P50 billion. The MIC has an authorized capital stock of P500 billion.

President Ferdinand R. Marcos, Jr. signed the Maharlika fund bill into law in July despite concerns raised by economists, including questions on the possible negative impact on the operations of state banks.

Mr. Marcos had said last year that the fund would be fully operational by the end of 2023.

“Usually, a day or two does not really matter. However, given the enormous opportunity cost of this fund, every second counts,” Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said in a Facebook Messenger chat.

“So, the three to four days of delay is already weighing heavily on people,” he added.

During the meeting, Mr. Consing was quoted by a Palace statement as saying the investment body will operate with “utmost” openness and “rigorous” accountability.

Mr. Lanzona said these statements are “not enough to convince people about the need” of the wealth fund.

“For one thing, there has been no accounting done as to the negative effects of this fund on the operations of the LANDBANK and DBP,” he added, noting that the fund has significant effects on farmers and small-scale entrepreneurs who rely on the two state banks.

Last year the two banks sought regulatory relief from the Bangko Sentral ng Pilipinas for their contributions to the Maharlika fund.

Also during the meeting, Mr. Consing updated the board on the MIC’s startup activities such as staffing and recruitment and the hiring of its management team.

Aside from Mr. Diokno and Mr. Consing, the MIC board members include LANDBANK President and CEO Ma. Lynette V. Ortiz, DBP President and CEO Michael O. de Jesus, and MIC directors Vicky Castillo L. Tan, Andrew Jerome T. Gan, German Q. Lichauco II, and Roman Felipe S. Reyes.

The board also appointed the Bureau of the Treasury as the interim fund manager of the MIC. 

“I am confident that we have a formidable team to steer the fund effectively towards transformative investments for the Philippine economy,” Mr. Diokno said.

The MIC’s next board meeting is scheduled in the fourth week of January. — Keisha B. Ta-asan and Kyle Aristophere T. Atienza

PROJECTS BENEFITING from incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law have reached P1.02 trillion in investment capital as of October, the Department of Finance (DoF) said. 

In a social media post, the DoF said this reflects the efforts of the Marcos administration to promote the Philippines as a good investment destination. 

“This landmark milestone also gained P572.98 billion worth of foreign direct investment (FDI) pledges, with 910 CREATE-approved projects varying across priority sectors listed in the Strategic Investment Priority Plan,” it said.

Of the 910 CREATE-approved projects, around 49 big-ticket tax incentive applications with a total investment capital of P817 billion were approved by the Fiscal Incentives Review Board.

The remaining 861 projects — with a combined investment capital of P203 billion — were from investment promotion agencies (IPAs).

“These projects are expected to accumulate a committed employment count of around 99,400 jobs within its incentivized period, with the labor-intensive manufacturing sector having the highest number of approved projects among the priority sectors,” the DoF said.

“This underscores the employability of the country’s workforce in high-quality jobs that will contribute to long-term economic growth,” it added.

CREATE was signed into law in 2021 to aid enterprises that have yet to recover from the coronavirus pandemic. It reduced corporate income tax rates, provided tax relief measures, and rationalized fiscal incentives.

“As CREATE establishes a performance-based, time-bound, targeted, and transparent tax incentives regime in the country, incentivized projects or activities under the key structural tax reform are to achieve performance metrics to ensure that the grant of fiscal support to registered business enterprises leads to higher economic returns,” the DoF said. 

In August, Albay Rep. Jose Ma. Clemente S. Salceda filed the CREATE to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill, which seeks to reconcile disparities between the CREATE Act and its implementing rules, primarily on value-added tax (VAT)-related transactions. 

Under CREATE MORE, local and export companies, even those inside ecozones and freeports, would continue to enjoy duty exemptions, VAT exemption on importation, and the VAT zero-rating of local purchases as provided in their respective IPA registrations.

Registered export enterprises would also enjoy non-income tax incentives, VAT exemption on importation and VAT zero-rating on local purchases, as long as the registered firm maintains 70% of the total annual production as export sale and continues to be registered in good standing with the IPA.

The measure also proposes to lower corporate income tax to 20% for those under the enhanced deduction regime from 20-25%.

The bill is currently being taken up in the House of Representatives. — Keisha B. Ta-asan

THE NATIONAL Government’s (NG) total outstanding debt hit a fresh high of P14.51 trillion as of end-November, the Bureau of the Treasury (BTr) said on Wednesday.   

The outstanding debt inched up by 0.2% from P14.48 trillion as of end-October, data from the BTr showed.

“NG’s debt stock increased by P27.92 billion or 0.2% month over month, primarily due to the net issuance of domestic securities,” the BTr said in a press release.

Year on year, the debt stock rose by 6.3% from P13.64 trillion.

Outstanding debt went up by 8.1% from P13.42 trillion as of end-December 2022.

More than two-thirds or 69.1% of total outstanding debt as of end-November came from domestic sources.

As of end-November, domestic debt increased by 1.2% to P10.02 trillion from P9.9 trillion a month earlier due to the net issuance of government securities.

Domestic debt also rose by 6.3% from P9.43 trillion in the same period a year prior.

“New domestic debt issued during the month totaled P171.091 billion while principal redemption amounted to P45.14 billion, underlying a net issuance of P125.95 billion,” the BTr said.

“The increase was partially offset by the P3.87-billion effect of peso appreciation on foreign currency-denominated domestic securities,” it added.

Data from the Treasury department showed the peso closed at P55.451 against the dollar as of end-November, strengthening by P1.357 or 2.4% from P56.808 as of end-October.

Meanwhile, external debt, which accounted for 31% of the total, slipped by 2.1% to P4.48 trillion as of end-November from P4.58 trillion as of end-October.

However, external debt rose by 6.4% from P4.22 trillion a year ago.

“For November, the lower level of external debt was due to the net repayment of foreign loans amounting to P1.08 billion and favorable foreign exchange movements, wherein the P109.37 billion reduction attributed to peso appreciation against the US dollar far exceeded the upward adjustment linked to third-currency appreciation of P16.3 billion,” the BTr said.

Broken down, external borrowings consisted of P2.06 trillion in loans and P2.42 trillion in global bonds.

As of end November, the NG’s overall guaranteed obligations slid by 12.2% to P353.14 billion from P361 billion as of end-October.

Year on year, guaranteed debt declined by 8.9% from P388 billion.

“The decline in the level of guaranteed debt was attributed to the net repayment of both domestic and external guarantees amounting to P1.21 billion and P3.5 billion, respectively,” the BTr said.

“In addition, the peso appreciation against the US dollar further trimmed P4.07 billion (from guaranteed debt). These more than offset the P0.92-billion effect of third currency appreciation on similarly denominated guarantees,” it added.

China Banking Corp. Chief Economist Domini S. Velasquez said the government incurred more debt to support budget financing.

“The increase in government debt was likely driven by the financing needs of government projects and programs. However, this growth was likely limited by lower market interest rates and the appreciation of the peso during the month,” she said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the record high NG debt was due to new borrowings to fund the budget deficit.

For 2023, the government has set a budget deficit ceiling of P1.499 trillion, equivalent to 6.1% of the gross domestic product (GDP).

“Looking ahead to 2024, we expect the government to increase its borrowings to fund the 2024 budget which is 9.5% higher than that of last year,” Ms. Velasquez said.

“On a positive note, the expected downtrend in market yields and further strengthening of the peso will help moderate debt growth. However, we think that the proposed tax reforms are crucial to ensure that the budget deficit and government debt remain at manageable levels,” she added.

Mr. Ricafort said the government’s outstanding debt could still increase in the coming months due to the maiden issuance of Sukuk bonds worth $1 billion last December.

“Continued budget deficits, though narrower from year ago levels, could still lead to additional borrowings/debt by the national government,” he said.

For 2023, the government plans to borrow P2.207 trillion, consisting of P1.654 trillion from domestic sources and P553.5 billion from foreign sources.

THE PHILIPPINE ECONOMY may grow by 5.6% this year as easing inflation could help boost consumption, MUFG Global Markets Research said.

In a report, MUFG Global Markets said the Philippine gross domestic product (GDP) is forecast to expand by 5.6% this year, picking up from the likely 4.8% GDP growth in 2023.

However, the growth forecast is below the Philippine government’s 6.5% to 7.5% growth target for 2024.

“We think that headwinds to domestic demand from elevated food and energy prices should gradually fade over time, but the growth rebound will probably be more evident from the second half of 2024 onwards, assuming no further food supply shocks,” it said.

Philippine GDP growth accelerated to 5.9% in the third quarter, mainly driven by faster government spending, while private consumption slowed. This brought the nine-month GDP growth average to 5.5%, still below the government’s 6-7% full-year target.

“The more stable external environment, coupled with stable USDPHP (US dollar-Philippine peso exchange rate), should also help Bangko Sentral ng Pilipinas (BSP) keep rates on hold through the next few months, and to start the rate-cutting cycle from the second half of 2024, as such helping investment and private consumption activity,” the research firm said.

MUFG Global Markets Research expects the BSP to cut interest rates by 50 basis points (bps) this year. This would bring the benchmark rate to 6% by end-2024, from the current 16-year high of 6.5%.

The Monetary Board has raised borrowing costs by a cumulative 450 basis points (bps) from May 2022 to October 2023 to tame inflation.

“We think the Philippine central bank will remain cautious for now, even as it looks more likely now that the Fed will start its rate-cutting cycle in 2024, together with the recent progress in bringing inflation down. This is also because upside risks to inflation are still present,” the research firm said.

Markets are anticipating the US Federal Reserve will begin cutting rates this year as inflation eases. At its December meeting, the Fed had forecast 75 bps in rate cuts for 2024.

“We think the Philippines’ central bank would prefer to take its lead from the Fed and wait for the US rate-cutting cycle to be clearly underway, before commencing its rate cuts,” it said.

For this year, MUFG Global Markets Research said Philippine inflation is seen to slowly return to the upper end of the BSP’s 2-4% target band if there are no more supply shocks.

“We expect the Philippines’ CPI (consumer price index) to fall into the central bank’s upper half of the inflation target by the first quarter 2024, and to stay around that range through the course of 2024… There are nonetheless still upside risks to inflation stemming from food supply shocks, possible transport fare hikes, and minimum wage increases,” it added.

BSP Governor Eli M. Remolona, Jr. said last month the central bank will likely keep benchmark interest rates higher for longer until inflation settles at around 3%.

MUFG Global Markets Research said the Philippine peso will likely underperform in 2024, as the current account deficit is seen at -3% of GDP and the central bank beefs up its foreign exchange reserves.

It expects the peso to end at P55.40 per dollar by the first quarter of 2024, and by P55 per dollar by yearend.

“Our forecasts imply some underperformance in PHP against other Asian FX (foreign exchange), but to a lesser extent than before, with lower global oil prices and fading of domestic food supply shocks helping to contain both inflation pressures and the current account deficit,” it said. — AMCS

THE PRICE AND SUPPLY of electricity in the Philippines are seen to be challenged this year due to warm weather but may be offset by the power capacity expansion from renewables.

Jose M. Layug, Jr., president of Developers of Renewable Energy Advancement, Inc., said he is anticipating supply challenges, especially during the summer months.

“No matter how we tried to maintain all these coal-fired plants, the point is they are already old so you should expect these power plants to break down very often and that’s why we need new capacities,” he said in a virtual interview.

“Otherwise, we will have an issue on supply, and we will be placing yellow alerts,” he added, referring to the warning when reserves fall below a designated safety margin.

In 2023, the Philippines was placed under yellow and red alerts several times due to sudden plant outages. The Department of Energy (DoE) had expected 12 yellow alerts last year. Red alerts are raised when the supply-demand balance deteriorates further, signaling the possibility of rotational brownouts.

For 2024, the DoE has so far not projected any potential yellow and red alerts as it banks on new solar power plants that will be coming in, which it said will be “favorable” under an El Niño scenario.

Latest data from the state weather bureau Philippine Atmospheric, Geophysical and Astronomical Services Administration showed that a moderate El Niño would continue to persist and intensify in the coming months.

Energy Secretary Raphael P.M. Lotilla is expecting a favorable status in electricity supply this year as he anticipates the completion of power transmission projects.

“We did manage to contain the weakness in 2023, and 2024 promises to be better. But of course, from the supply side, and we hope that by 2024, we shall also finish a number of major transmission connections, but of course, there remain threats,” he told reporters in an interview last month.

Privately owned National Grid Corp. of the Philippines (NGCP) holds the sole and exclusive concession and franchise for the operation of the country’s power transmission network, which links power generators and distribution utilities to deliver electricity nationwide.

NGCP has already energized some of its transmission projects such as the P10.2-billion Hermosa-San Jose 500-kilovolt transmission line. It is currently working on the full completion of the Mindanao-Visayas Interconnection Project (MVIP).

Majah-Leah V. Ravago, an energy economist from the Ateneo de Manila University, said increasing power generation means investing in transmission projects.

“You cannot address the problem that you’re just looking at generation because the consumption of electricity is a whole system in itself,” she said in a virtual interview.

“You cannot look at increasing generation without accompanying investment in transmission and distribution. We have many cases like that,” she added.

Two decades after the Electric Power Industry Reform Act was passed, electricity rates in the Philippines are still one of the highest in the region as there are still a lot of inefficiencies in the system.

The Philippines’ per capita consumption of electricity is low relative to its neighbors due to high power prices brought on by inefficiency and reliability issues, according to Ms. Ravago.

Citing data from the World Bank and the United Nations, she said that the country’s per capita consumption was at 975.61 per kilowatt-hour (kWh) in 2022.

This is relatively lower compared with the country’s peers in the Association of Southeast Asian Nations (ASEAN) such as Singapore (9,168.82 per kWh), Malaysia (5,318.78 per kWh), Indonesia (2,662.31 per kWh), and Thailand (1,210.67 per kWh).

Electricity consumption in the country is expected to grow by nearly four times the 2018 level by 2040, Ms. Ravago said.

“If we are to meet that growth by 2040, it means that electricity consumption has to grow. It means demand is growing, it has to be met by supply. Otherwise, we would have electricity price increases,” she said.

To meet the demand, she said that the government should address regulatory bottlenecks both for generation and transmission.

Since power generation is privately led in the Philippines — which attracts investments — the government should instead focus on facilitating these capital inflows, easing regulatory burdens, and expanding transmission, Ms. Ravago said.

“We just need to make sure that the other related infrastructure, transmission lines, and ports are also upgraded in time of these projects going online,” Mr. Layug said.

Data from the DoE showed that wind, natural gas, and solar dominated most of the indicative projects, or those currently in the pre-development stage, as of August 2023 with a capacity of 34,080.50 megawatts (MW), 7,987.60 MW, and 7,811.86 MW, respectively.

‘THE WAY TO GO’
Renewables are seen to be able to offset a rise in electricity prices and mitigate the high prices of oil and coal.

“This year… the private sector is happy about how the government, particularly the DoE, has convinced and has signaled to the private sector that renewables are the way to go,” Mr. Layug said.

As of end-2022, the share of renewable energy (RE) in the country’s power generation mix was about 22%. The government has set a target of increasing this to 35% by 2030, then 50% by 2040.

“We all know that the cost of RE is now more optimal, more affordable especially for the consumers, so we’re happy with that and we hope the government continues its forward-looking planning of the energy sector in the Philippines by continuously pushing for renewable as part of the energy mix,” Mr. Layug said.

Within RE technologies, solar and wind energy are seen to drive the growth of renewables.

“In the next three years, I still see solar onshore and onshore wind to dominate. With, hopefully, waste-to-energy [projects] catching up a little bit,” Mr. Layug said. “We hope to see floating solar and offshore wind to dominate.”

As of October, the DoE has awarded around 1,300 RE contracts, promising a total potential capacity of about 130,000 MW.

Of the total, 225 wind energy contracts have been awarded with the highest combined capacity of 83,079.3 MW. This was followed by 356 solar energy projects with 27,889 MW and 430 hydropower projects with a capacity of 18,924.4 MW.

“We are in a good position to implement reforms necessary to energy transition,” Ms. Ravago said, citing the moratorium on new greenfield coal power plants and the liberalization of the RE sector.

Budget Secretary Amenah F. Pangandaman last week issued the National Budget Call in a memorandum, asking government agencies to begin preparing their budget proposals for 2025.

The proposed 2025 national budget is set at P6.12 trillion, according to the Development Budget Coordination Committee. This is 6.1% higher than the P5.768-trillion national budget for 2024.

“The Fiscal Year 2025 budget aims to continuously address the socioeconomic issues our country has been facing, e.g., high food prices, increasing fuel prices, and the scars that the pandemic has left, among others,” the DBM said.

The government is targeting 6.5-7.5% gross domestic product (GDP) growth this year, but the outlook is clouded by risks to inflation, tight borrowing costs, and a global slowdown.

To tame inflation, the Bangko Sentral ng Pilipinas (BSP) has tightened interest rates by 450 basis points from May 2022 to October 2023, bringing the key rate to a 16-year high of 6.5%.

Aside from addressing economic issues, the 2025 spending plan will also support infrastructure investments, with emphasis on flagship infrastructure projects approved by the National Economic and Development Authority.

“However, increased infrastructure spending will not, in any way, detract from the full support provided to the poorest, lagging, climate change and disaster risk vulnerable areas nor the social sector, and basic public services,” the DBM said.

The government also seeks to adopt emerging global trends on digital transformation to boost and foster efficiency, effectiveness, and transparency of service delivery.

The 2025 budget will also include funds for capacity-building programs for local government units (LGUs) such as competency-enhancing interventions, resource generation, public financial management, leadership and development planning, among others.

This is aimed at helping LGUs in assuming the devolved functions and services from the National Government, as mandated by the Supreme Court’s Mandanas-Garcia ruling.

The DBM said the proposed 2025 budget and its priorities will be anchored on the government’s commitment to achieve the 2030 Agenda for Sustainable Development.

“With six years remaining until the 2030 Agenda, there is a need to accelerate the progress or reverse the negative trends to achieve the global goals of establishing a transformative vision towards economic, social, and environmental sustainability,” it said.

The 2025 budget proposals should include the priorities and policy directions of the Marcos administration, citing the government’s medium-term fiscal framework, the eight-point socioeconomic agenda and the Philippine Development Plan for 2023-2028.

However, due to the impact of the country’s debt burden and competing demands from government agencies, the budget allocation for 2025 will be optimized.

“As part of the evaluation process, the government will consider how the agencies utilized their previous year budget and the implementation progress of their mandated programs and projects to ensure that only those agency proposals, which are implementation-ready, are included in the budget,” the DBM said.

The DBM said agencies should provide the necessary supporting documents such as concrete program plans and designs that outline procurement and implementation milestones.

The budget should also ensure regional plans are in line with national priorities “to achieve equitable regional investment opportunities and growth,” it added.

“In particular, the National Government’s 2025 budget shall provide funds for agencies’ regional programs which are responsive to the needs of the poorest, disadvantaged and lagging LGUs,” the Budget department added.

According to the DBM memorandum, government agencies should submit their signed hard copies of the 2025 budget proposals between March 25 and April 22.

The proposed 2025 national budget will be submitted to Congress on July 22. — Keisha B. Ta-asan

FACTORY ACTIVITY in the Philippines expanded at a slower pace in December, reflecting modest growth in new orders and output across the sector, S&P Global said on Tuesday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 51.5 in December, lower than the nine-month high of 52.7 in November.

S&P Global said the headline index showed only a modest improvement in operating conditions. At 51.5, the December figure was the weakest in three months or since the 50.6 reading in September.

A PMI reading above 50 denotes better operating conditions than in the preceding month, while a reading below 50 shows a deterioration.

“The year concluded with yet another expansion across the Filipino manufacturing sector. Output and new orders continued to rise, albeit at softer rates,” Maryam Baluch, an economist at S&P Global Market Intelligence, said in a report released on Tuesday.

The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

S&P Global said the easing manufacturing growth in December was mainly due to a “notable softening” in new orders, which grew at the slowest pace in four months.   

“Moreover, total sales growth was focused domestically as the demand picture across international export markets deteriorated, with manufacturers reporting a fresh and solid fall in new export sales in December,” it said.

Manufacturing output also grew at the weakest pace in three months, S&P Global said. Despite this, output growth remained robust amid a steady rise in new orders.

“Firms also noted growing supply-side challenges with average lead times lengthening again in December. Congestion and longer delivery times for imports were blamed for delays. Moreover, vendor performance deteriorated at the greatest extent in five months,” it said.

S&P Global noted that manufacturing firms slashed jobs in December, as employment dropped for the second straight month.

“The main concern in the sector remains the further curtailment of workforce numbers. Evidence of spare capacity and a cooldown in new order growth prompted redundancies,” Ms. Baluch said.

S&P Global said Philippine manufacturers also reported increased inflationary pressures as prices of fuel, materials, and shipping rose. This prompted firms to hike selling prices.

Headline inflation may have eased to 4% in December, based on a median estimate in a BusinessWorld poll last week. If realized, December inflation would be a tad slower than 4.1% in November and significantly lower than 8.1% in December 2022.

The local statistics agency will release the December inflation data on Jan. 5.

“Sluggish demand from overseas markets and tight borrowing conditions across the country will act as headwinds as we move into 2024. That said, inflationary pressures are expected to pose less of a threat than seen at the start of 2023, despite gaining pace during December,” Ms. Baluch added. 

Still, Filipino manufacturers remained optimistic for the new year as business confidence rose to a four-month high, according to S&P Global.

“Hopes of improving demand conditions and plans for increased marketing campaigns boosted optimism,” it said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said factory activity expanded in December, due to the seasonal increase in importation, manufacturing, and other production activities since the third quarter of 2023.

However, elevated inflation and borrowing costs may have weighed on investments, including those in the manufacturing sector, Mr. Ricafort said.

“Furthermore, softer manufacturing and services PMI data for many developed countries around the world… partly reduced the demand for exports and somewhat dragged on some local manufacturing activities,” he said.

SECOND FASTEST IN ASIA
The Philippines recorded the second-highest PMI reading among six Southeast Asian countries in December, just behind Indonesia (52.2).

Manufacturing activity in Vietnam (48.9), Malaysia (47.9), Thailand (45.1) and Myanmar (42.9) contracted in December.

On average, the Association of Southeast Asian Nations (ASEAN) headline PMI dropped to 49.7 in December, easing from 50 in November.

S&P Global said the ASEAN headline PMI contracted for the third time in four months.

“Central to the deterioration in operating conditions was a quicker fall in new orders. Inflows of new work fell for the fourth month running in December, which in turn weighed on production growth,” it said.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the slower growth in December may be attributed to difficulties in supply chain management, possible shifts in consumer demand, fluctuations in prices of raw materials, and changes in overall economic conditions.

“(The Philippines) still outperformed ASEAN’s 49.7 though. We calculated that the Philippines’ average monthly PMI was at 52.2 in the fourth quarter, the highest in three quarters,” he said.

He also noted that a recovery in the manufacturing sector may contribute to the Philippines’ faster gross domestic product (GDP) growth, adding that GDP expansion could average 5.8% in the fourth quarter of 2023.

China Banking Corp. Chief Economist Domini S. Velasquez said global economic headwinds continued to weigh on the manufacturing sector.

“Data from China and the rest of Asia pointed to softer activities towards the end of the year. Bellwether manufacturing countries, especially with regard to semiconductors, such as Taiwan and South Korea posted contractions in December,” she said.

For this year, the Philippine manufacturing sector is expected to grow modestly amid easing inflation.

“The easing of inflationary pressures is expected to support domestic demand, while a recovery in the semiconductor industry is likely to boost external demand in 2024. These factors should contribute to a gradual improvement in the manufacturing sector’s performance,” Ms. Velasquez added.

LILY G. TERRENIO was 19 years old when she became a factory worker at Amertron, Inc. inside the Clark Freeport Zone north of the Philippine capital in 1988.

The high school graduate worked for the Taiwan-owned semiconductor company until 2000, before leaving for Dubai to work as a chambermaid.

“I would have wanted to join a different manufacturer after I left the company to broaden my experience, but options were limited,” she said in an interview.

Ms. Terrenio came back to the Philippines after two decades, when the manufacturing sector contracted by 9.8% from a year earlier amid a coronavirus pandemic.

The government must rescue the manufacturing sector from issues that have stalled growth including the lack of skilled workers, governance problems and an impending energy crisis that could paralyze the economy, analysts said.

“Philippine manufacturing has been on a retreat since the 1980s,” national scientist Raul V. Fabella, a professor emeritus at the University of the Philippines School of Economics said in an e-mail. “The share of manufacturing in Philippine gross domestic product has been losing out to services.”

He called the phenomenon “development progeria,” which happens in low-income economies when the share of industry sectors including manufacturing falls while services flourish. “The dynamics will continue into the near future because its roots are structural.”

Manufacturing activity in the Philippines continued to expand in December, albeit at a slower pace, S&P Global said on Tuesday. The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) slipped to 51.5 in December, from a nine-month high of 52.7 in November.

The Philippines had the second-highest PMI reading among Southeast Asian countries with available data, after Indonesia (52.2). Vietnam, Malaysia, Thailand and Myanmar all contracted in December.

It was a significant development for a sector that has been lagging its regional peers for decades.

In 2022, the largest share of exported commodity goods from the Philippines were electronic products, particularly semiconductors and electronic data processing products such as hard drives, making it the biggest contributor to the country’s export sales, according to Statista.

Aside from electronics, the Philippines has a large food manufacturing industry, which generated a gross value added of about P1.8 trillion ($32.5 billion) in 2022. Among the country’s leading food exports were animal or vegetable fats and oils and processed foods such as bread, cereals and dairy products.

Food manufacturers in the country also produce flour and sugar for domestic consumption and export. The Philippines also exports chemicals and chemical products such as fertilizers, petrochemicals and plastic products.

FOREIGN OWNERSHIP
Manufacturing sector growth relies on foreign direct investments (FDI), which amounted to only $9.2 billion in 2022, behind Thailand ($10 billion), Malaysia ($15.1 billion), Vietnam ($17.9 billion), Indonesia ($21.7 billion) and Singapore ($140.8 billion).

This was despite the passage of laws liberalizing the Philippine economy, including the Corporate Recovery and Tax Incentives for Enterprises Act, which cut the corporate income tax for domestic and foreign corporations to 25% from 30%.

In 2021, the Philippines passed a law that amended the country’s 85-year-old Public Service Act, allowing full foreign ownership in domestic shipping, telecommunications, shipping, railways and subways, airlines, expressways and tollways, and airports.

Global investment banker Stephen Anthony T. CuUnjieng said foreign investors “want to make money first” and changing the laws “would not necessarily make them make money.”

“If the country or the sector is unattractive or less profitable than other countries, changing the law will not change that,” he told One News channel in December, amid a renewed push to amend economic provisions of the 1987 Philippine Constitution.

“If the sector is attractive and you make foreign ownership and doing business easier, then yes, more FDIs will come in,” Mr. CuUnjieng said. “Allowing more foreign ownership will work. But if you’re not attractive to begin with, opening it up to 100% ownership and giving subsidies won’t change it if the return on investment will be lower.”

He said investors in the manufacturing sector are largely looking at labor productivity and lower electricity costs, which can be anywhere from 20% to 60% of their production costs.

“If a manufacturer in the Philippines is 20% to 40% more expensive than another in Indonesia, Thailand or Vietnam, you’re starting out already with a deficit of as much as 30% versus other countries, why would you come here for manufacturing?” he asked.

President Ferdinand R. Marcos, Jr. last year extended by another 15 years the contract for the Malampaya gas field, which supplies 20% of the Philippines’ total electricity requirements, allowing the operator to drill new wells.

Amid the declining output of the gas field, which is expected to run dry by 2027, Mr. Marcos expressed willingness to resume joint energy exploration activities in the South China Sea.

“Our power cost is the highest in ASEAN (Association of Southeast Asian Nations) for large establishments,” Mr. Fabella said, noting that the state should lower manufacturers’ electricity costs by exempting them from missionary, universal and stranded cost charges.

The possible decline in the quality of the Philippine labor force also threatens the country’s manufacturing ambitions, according to Mr. CuUnjieng.

Filipino students were still among the world’s weakest in math, reading and science, according to the 2022 Program for International Student Assessment (PISA), with the Philippines ranking 77^th out of 81 countries and performing worse than the global average in all categories.

Terry L. Ridon, convenor of InfraWatch PH, said decades-long governance issues such as corruption and red tape would continue to hound the manufacturing sector.

Investors seeking to establish hubs in emerging economies would look for countries that have “very streamlined processes for permits and licenses and have low to zero perception of government corruption, he said in an e-mail.

“Our government does not live by contracts it signed and stands ready to change provisions depending on populist sentiment,” Mr. Fabella said. “Long-term investors do not invest where expropriation noise is rampant.”

The stability of politics and ease of doing business in Vietnam have been cited as key factors behind its rise as the top choice for global manufacturers diversifying away from China, which has been in a years-long trade war with the United States.

There are fewer occurrences of policy reversals in Vietnam because of its political structure, “thus increasing certainty, which is good for the investment climate,” George N. Manzano, who teaches trade at the University of Asia and the Pacific, said in an e-mail.

Vietnam has a one-stop shop for investors, Mr. CuUnjieng said. “You go to one government agency, and they take care of everything. In the Philippines, you often have one shop at every stop.”

Vietnam had FDIs worth $112 billion from 2010 to 2019, compared with $57 billion for the Philippines. Its merchandise exports in 2019 hit $300 million, compared with $70 million for the Philippines.

“The heady foreign direct investments that Vietnam attracted in the past years may have increased its attractiveness,” Mr. Manzano said. “Investments beget other investments, particularly if an investment of a sizeable manufacturing concern will attract its supplier industries to locate as well.”

He noted that as more foreign investments cluster at one hub, the production costs usually fall, leading to so-called “economies of agglomeration.”

“At the same time, there will be more flow of ideas prompting innovation,” he said. “The clustering of industries in Vietnam’s special economic zones can lead to economies of agglomeration.”

The Philippine Economic Zone Authority said it wants to benefit from the relocation of big foreign companies, especially those in the technology sector, from China.

The country anticipates increased investments in metal fabrication or skilled manufacturing, especially in the electronic vehicle (EV) sector, PEZA Director-General Tereso O. Panga said in a Viber call. He added that EV players from China, the US, Indonesia, South Korea and Japan are expected to set up production sites in the country this year.

“It’s not just multinational companies that are relocating from China, but also mainland Chinese manufacturing businesses so they can avail themselves of GSP+ privileges for their exports,” he said.

The European Parliament and European Council have agreed to extend GSP+ arrangements for four more years while they negotiate reforms to the trade deal, where the Philippines enjoys zero duties on more than 6,000 exports.

As the Philippines steps up efforts to save its export-oriented manufacturing sector, the country must also look at its volatile exchange rate, which hurts exporters and is deadly to smaller ones, Mr. Manzano said.

“We should provide a more stable exchange rate regime geared to level the playing field between nontradable and tradable goods.”

The Philippine trade deficit has been widening in the past years, as the country imports more than it exports.

Analysts said tensions with China don’t bode well for the country’s export-oriented manufacturing sector.

China remains the largest source of technologies that the Philippines needs to make its exports competitive, such as electronics and machinery, Mr. Manzano said.

“The Philippines needs electronic parts and components from China in order to export,” he said. “If the imports of parts and components are sourced from more expensive suppliers, the competitiveness of Philippine exports, particularly electronics, would be undermined.”

“The protection and development of our export-focused manufacturing is critical to propping up our dollar reserves in light of our massive import requirements in infrastructure and agriculture,” Mr. Ridon said. “This has not been enough to ensure a positive balance of trade for almost a decade.”

PHILIPPINE BANKS failed to meet the mandated quota for small business loans in the first nine months of 2023, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Loans extended by the banking industry to micro-, small-, and medium-sized enterprises (MSMEs) amounted to P552.404 billion as of end-September, which made up only 4.63% of their total loan portfolio of P11.9 trillion.

This was 21.6% higher than P454.303 billion in loans extended to the MSME sector in the January-to-September period in 2022.

Under Republic Act No. 6977 or the Magna Carta for MSMEs, banks are required to allocate 10% of their total loan portfolio for small businesses to boost the sector — 8% for micro and small enterprises and 2% for medium-sized enterprises.

However, banks have long opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small businesses.

BSP data showed loans for micro and small enterprises amounted to P214.748 billion as of end-September, comprising just 1.8% of their total loan portfolio and well below the 8% quota.

On the other hand, lending to medium-sized enterprises stood at P337.656 billion in the period. This is equivalent to 2.83% of the banks’ credit book and above the 2% minimum ratio required under the law.

Based on the type of bank, BSP data showed universal and commercial banks disbursed P153.105 billion in credit to micro and small enterprises as of end-September, equivalent to only 1.44% of their P11.13-trillion loan portfolio.

Big banks’ loans to medium-sized enterprises stood at P291.452 billion or 2.62% of their loan book.

At the same time, thrift banks were also unable to meet the quota as their loans to micro and small enterprises reached P29.228 billion or 3.81% of their P591.821-billion loan portfolio.

Still, thrift lenders went beyond the credit quota for medium enterprises as their loans to the sector hit P27.903 billion or 4.75% of their loan book.

Meanwhile, rural and cooperative banks extended loans worth P32.346 billion to micro and small enterprises. This is equivalent to 16.39% of their P197.401-billion credit book, and well above the minimum amount required by law. Their loans to medium enterprises hit P18.3 billion or 9.27% of their loan portfolio.

The BSP also recorded the loans granted by digital banks to the MSME sector. Digital banks disbursed P70 million in credit to micro and small enterprises in the first nine months of 2023, representing 0.4% of their P17.25-billion loan portfolio.

Digital banks did not extend loans to medium enterprises.

During the pandemic, the BSP allowed banks to count MSME loans as alternative reserve compliance with the reserve requirements to help prop up the sector. This relief measure expired on June 30, 2023.

However, the relief measure was extended to thrift banks as well as rural and cooperative banks until Dec. 31, 2025.

Based on separate central bank data, small banks allocated a total of P8-billion and P6.5-million loans to MSMEs and large enterprises, respectively, for the week ending Oct. 19.

The unwinding of the pandemic relief measure coincided with the reduction in banks’ reserve requirement ratios on June 30, 2023.

In April 2023, the central bank launched the Credit Risk Database Scoring Model, which is expected to serve as an additional tool that lenders can use to analyze the creditworthiness of MSMEs, especially those without credit history or enough collateral. — Keisha B. Ta-asan

THE PHILIPPINES has yet to fulfill several action plans more than two years since it was placed under the “gray list” of the Financial Action Task Force (FATF), the country’s dirty money watchdog said.

But the Anti-Money Laundering Council (AMLC) is still hoping the Philippines will be able to exit the FATF’s gray list this year, and to avoid a possible inclusion in the blacklist.

At a Palace briefing, AMLC Executive Director Matthew M. David said the Philippines still has to address eight out of the 18 action plan items it had committed to comply with to be removed from the gray list.

“The most challenging action item is regarding terrorism financing prosecution. We need to file more terrorism financing cases and the one in charge of complying with this action item are the law enforcement agencies, including the AMLC,” he said.

Other remaining action plans include the effective risk-based supervision of nonfinancial businesses and professionals, mitigating risk associated with casino junkets, and streamlining access to beneficial ownership information, Mr. David said.

The Philippines has been in the global financial crime watchdog’s gray list of jurisdictions under increased monitoring for dirty money risks since June 2021.

Since the Philippines had failed to meet the FATF’s January 2023 deadline to comply with the action plans, Mr. David said the government has a self-imposed goal of exiting the gray list this month.

“The longer we are on the gray list, the bigger the possibility or the higher the risk that we will enter the blacklist,” he said.

Only three countries are currently in the FATF’s blacklist — North Korea, Iran and Myanmar.

President Ferdinand R. Marcos, Jr. on Tuesday presided over the  sectoral meeting on the status of the Philippines in FATF gray list.

“The President also directed the agencies of government to continue with their actions and to continuously sustain good coordination among themselves, between the law enforcement and other government agencies,” Mr. David said.

Enrico P. Villanueva, who teaches banking at the University of the Philippines Los Baños, said banks have done a lot of work and investments in order to manage risks related to money laundering and terrorism financing. Nonbank entities need to do more to catch up, he noted.

“For banks, improvement can still be made on drilling down customer accounts to the ultimate beneficial owners,” he said, noting that beneficial ownership information should be digitized and accessible to regulators and law enforcement agencies.

For nonbank entities, Mr. Villanueva said the regulator should impose penalties such as monetary fines or suspension of business licenses “to communicate seriousness in enforcement.”

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the Philippines needs to lift the Bank Secrecy Law to make banking regulations at par with those of its Southeast Asian neighbors.

“It will also help in facilitating the integration of the country’s capital markets into the region,” he said via Messenger chat.

Should the Philippines be blacklisted by FATF,  Mr. Ricafort said investments and other fund flows into the Philippines would be affected.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, called on the government to reverse its policy on offshore gambling.

“A first order of business should be the elimination of offshore gambling which is susceptible to money laundering schemes,” he said. “But of course, this should involve a whole-of-government approach which apparently this government has not done.”

In March 2020, then-senator Franklin M. Drilon flagged that millions of dollars brought into the Philippines between December 2019 and February 2020 might have been laundered through Philippine Offshore Gaming Operators (POGOs), which refer to Chinese gambling companies that offer online gambling services to markets outside the Philippines.

The Marcos administration began a crackdown on many POGOs after a spate of kidnappings that targeted their Chinese workers.

“The President has reiterated the government’s high-level political commitment and directed all government agencies concerned to swiftly address the remaining deficiencies in relation to the gray-listing of the Philippines,” Mr. David said at the Tuesday briefing.

He said investor confidence and even the country’s credit rating may be affected if the Philippines remains on the gray list.

“It may also affect foreign direct investments in the Philippines because if you don’t exit the gray list, they may think that our anti-money laundering, combating terrorism financing system is not adequate enough, or sufficient enough or strong enough,” he added.

Rommel C. Banlaoi, chairman of the Philippine Institute for Peace, Violence, and Terrorism Research, recognized the passage of The Terrorism Financing Prevention and Suppression Act of 2012, which was complemented by a 2020 law that amended the country’s Anti-Terrorism Act of 2001.

The two laws as well as the decline of terrorist threats would be enough for the Philippines to exit from the FATF’s gray list.

The country’s anti-terrorism financing measures should consider the emerging global financial landscape, Chester B. Cabalza, founder of Manila-based International Development and Security Cooperation, said via Messenger chat.

Mr. Cabalza cited the introduction of bitcoins, online transactions, and virtual wallets.

Mr. Villanueva said the action plan items needed to get out of the gray list may be challenging but not impossible.

“They just require bureaucratic or political will. For societies or governments that tolerate wrongdoings, political will may be wanting,” he said. — Kyle Aristophere T. Atienza

The FATF, an intergovernmental organization combating money laundering and terrorism financing, added the Philippines to the list in June 2021 for several reasons, including risk of money laundering from casino junkets and lack of prosecution for terrorism funding cases.

The Philippines has yet to address several issues flagged by the FATF, Executive Director of the Anti-Money Laundering Council, Matthew David, told a presidential palace press conference.

“The most challenging action item is terrorism financing prosecution. We need to file more terrorism financing cases,” he said.

The longer the Philippines is on the grey list, the higher chance it has of being downgraded to the black list, David said.

Being blacklisted by the FATF could result in more stringent requirements and higher transaction costs for millions of Filipinos living and working abroad who send billions of dollars to the Philippines in remittances. — Reuters

HEADLINE INFLATION may have further eased in December and settled to within the 2-4% target for the first time in almost two years amid lower prices of fruits and vegetables, electricity and fuel, analysts said.

Inflation likely eased to 4% last month, according to a median estimate of a BusinessWorld poll last week. This is within the 3.6% to 4.4% forecast given by the Bangko Sentral ng Pilipinas (BSP) last week.

December could mark the first time inflation returned to the BSP’s 2-4% target after 20 straight months of going above target. It would also be the slowest since 3% in February 2022.

At 4%, the December inflation would be a tad slower than 4.1% in November and significantly lower than 8.1% in December 2022. 

This would also bring the full-year inflation to 6%, matching the BSP’s average baseline forecast for 2023.

The Philippine Statistics Authority is scheduled to release consumer price index data for December on Jan. 5. 

In a statement on Friday, the BSP said lower prices of vegetables, fruits, fish, electricity and fuel might have contributed to the downward price pressure. 

On the other hand, higher prices of rice and meat would likely be the primary sources of upward pressures, the central bank said. 

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision making,” it added. 

Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail that inflation might have slowed to 4% in December due to base effects and lower electricity rates.   

Manila Electric Co. cut the rate for a typical household by P0.6606 to P6.5332 per kilowatt-hour last month.

China Banking Corp. Chief Economist Domini S. Velasquez noted that most of the upward price pressures last month came from food items. 

“However, their impact was partially offset by declines in the prices of vegetables, eggs, sugar and electricity. Additionally, despite recent oil price hikes, domestic pump prices, on average, were lower month on month,” she said in an e-mail. 

In December alone, pump price adjustments stood at a net increase of P0.3 a liter for gasoline. Diesel and kerosene prices had a net decrease of P0.35 and P0.51 respectively.

“Waning pent-up demand will see prices of basic consumer products cool compared with a year ago. Further, with global oil prices moderating, that should help lower average gasoline prices on a year-earlier basis,” Sarah Tan, an economist from Moody’s Analytics, said in an e-mail. 

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris Dacanay said inflation is still “more-or-less sticky.”   

“This is because the drop in fuel prices was likely offset by the rise in global rice prices as these re-spiked due to El Niño risks. Moving forward, elevated rice prices will likely put a floor under how much inflation can ease in the Philippines throughout 2024,” he said.

Data from the Agriculture department showed that regular-milled rice prices stood at P52 a kilo as of Dec. 29, at the high end of the P33-P52 band on Nov. 30. Retail prices of well-milled rice also went up to as much as P56 a kilo.

The typical surge in domestic demand due to holiday spending might have also kept inflation high, Mr. Dacanay said.   

“With inflation sticky, the December print will likely reinforce the BSP’s hawkish view that high interest rates will likely persist throughout (2024),” he said.

At its December meeting, the Monetary Board left its target reverse repurchase (RRP) rate unchanged at a 16-year high of 6.5%. This was the second straight meeting that the BSP stood pat since its 25-basis-point (bp) off-cycle hike on Oct. 26.    

The central bank raised borrowing costs by a total of 450 bps from May 2022 to October 2023.

BSP Governor Eli M. Remolona, Jr. earlier said inflation was not yet out of the woods, and borrowing costs may need to stay higher for longer in 2024.    

The central bank expects full-year inflation to have hit 6% in 2023, before easing to 3.7% in 2024 and 3.2% for next year.   

RISKS TO OUTLOOK
“Looking ahead to 2024, there is a good chance that full-year inflation will already settle within target, barring any new supply shocks,” Ms. Velasquez said. 

However, the key risks to the inflation outlook this year include the impact of El Niño on food and utilities, higher global oil prices, potential increases in transport fares, and minimum wage adjustments in some regions, she said. 

“Should the easing inflation trend continue in December, this will support the case for BSP’s tightening cycle to end. We see inflation likely bumping around the 4% mark in early 2024 before returning firmly to BSP’s target range by mid-2024,” Ms. Tan said. 

Mr. Dacanay said the extension of lower tariffs on key commodities would help keep inflation expectations at bay, which will give the BSP room to begin its easing cycle by the middle of 2024. 

President Ferdinand R. Marcos, Jr. last month signed Executive Order No. 50, which extends the reduced Most Favored Nation (MFN) tariff rates on rice, corn and pork until Dec. 31.

The rates for rice imports will be kept at 35% for shipments both within or over the minimum access volume quota. Tariff rates for swine, fresh, chilled or frozen meat are retained at 15% for in-quota and 25% for out-quota imports. Imports for corn maintained the MFN duty at 5% and 15% for in-quota and out-quota shipments, respectively.

Mr. Arogo said inflation would only settle “sustainably” within the BSP’s 2-4% target by the fourth quarter of 2024. 

“As such, the BSP should only cut rates in the fourth quarter and we believe that a total of 50 bps would be appropriate,” he said.

A 50-bp worth of cuts this year would bring the key rate down to 6%.

“Our baseline inflation forecasts assume some rebound in oil prices and agricultural disruptions due to El Niño. If supply-demand conditions continue to improve, however, price growth may enter the target range continually at an earlier date,” Mr. Arogo said. 

However, investors are pricing in a total of 75-bp cuts from the US Federal Reserve in 2024, he said. 

“Therefore, the risk to our estimates worth noting is the possibility that the reduction in the target RRP rate could happen earlier than the fourth quarter and the magnitude might be more than 50 bps,” he added. 

The US central bank kept borrowing costs unchanged at 5.25-5.5% in December. This was after it hiked policy rates by 525 bps from March 2022 to July 2023.

“We expect a pretty good outlook until early this year including a strong peso vis-à-vis the US dollar,” Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said. 

The peso closed at P55.37 versus the dollar on Friday, up by 11 centavos from Thursday’s P55.48 finish. Year to date, the peso appreciated by 38.5 centavos or 0.69% from its P55.755 a dollar close on Dec. 29, 2022.

The Monetary Board will hold its first policy review this year on Feb. 15.

THE NATIONAL Government’s (NG) debt service bill slipped by 7.7% in November due to a drop in amortization payments, according to the Bureau of the Treasury (BTr).

Data from the BTr showed debt payments fell to P56.674 billion from P61.393 billion a year earlier.

Month on month, debt payments declined by 27% from P77.76 billion in October.

Interest payments rose by 86% year on year to P48.55 billion in November, accounting for 86% of the total debt service bill.

Interest paid on domestic debt jumped by 89.72% to P35.257 billion. This consisted of P26.026 billion in fixed-rate Treasury bonds, P7.734 billion in retail Treasury bonds and P1.478 billion in Treasury bills.

Interest paid to foreign creditors also increased by 77% to P13.291 billion.

Meanwhile, principal payments slid by 77% to P8.126 billion in November from P35.301 billion a year earlier.

Principal payments on foreign debt slid by 77% year on year to P8.03 billion, while amortization on domestic debt slumped by 54% to P96 million.

“Debt service payments eased in November 2023 as government debt maturities are relatively lower towards the holiday season,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

In the first eleven months of 2023, debt payments rose by 55% to P1.535 trillion from P991.056 billion a year ago.

The bulk of the debt service bill in January to November consisted of principal payments, which jumped by 81.85% to P967.09 billion as of end-November from P531.803 billion a year ago.

Principal payments for domestic debt jumped by 109% to P854.039 billion, while amortization on foreign obligations dropped 7.91% to P113.051 billion.

On the other hand, interest payments went up by 24% to P567.65 billion in the 11-month period from a year earlier.

Interest paid to domestic creditors rose by 12.96% to P392.190 billion. This consisted of P248.69 billion in fixed-rate Treasury bonds, P124.118 billion in retail Treasury bonds and P15.275 billion in Treasury bills.

Interest payments on foreign debt increased by 36.14% to P175.465 billion.

Mr. Ricafort said the debt service bill could be reduced further once the US Federal Reserve and Bangko Sentral ng Pilipinas (BSP) begin their easing cycles.

The BSP has raised its policy rate by 450 basis points (bps) to a 16-year high of 6.5% since it began its tightening cycle in May 2022 to tame inflation.

The government’s debt service budget this year is set at P1.552 trillion — P914.353 billion in amortization payments and P610.665 billion in interest. — A.M.C. Sy

THE DEPARTMENT of Energy (DoE) is proposing to implement the long-delayed increase in the coco biodiesel blend to 3% starting July 1.

In a draft department circular, the DoE proposed that all diesel fuel sold in the country contain a biodiesel blend at 3% effective  July 1, from 2%.

It also proposed to hike the biodiesel blend to 4%, effective July 1, 2025, and to 5% on July 1, 2026.

The Biofuels Act of 2006 mandates that all liquid fuels for motors and engines contain locally sourced biofuel components.

Oil companies must use a 2% biodiesel blend by volume in all diesel fuel sold and distributed in the country since February 2009. 

“The downstream oil sector may offer consumers a gasoline fuel containing 20% bioethanol blend on a voluntary basis,” the DoE said in the circular.

Since February 2012, oil retailers have been required to implement a 10% bioethanol blend in gasoline fuel sold locally.

In November, the Cabinet-level National Biofuels Board recommended the higher biodiesel blend starting this year, as well as the voluntary implementation of the higher bioethanol blend.

Once approved, the DoE said the circular would be applied to all participants in the downstream oil and the local biofuel producer industries.

With the proposed policy, the DoE said the downstream oil industry should prepare “to ensure the managerial and operational requirements for the transition to the higher biofuel blend.”

Companies should ensure enough storage capacity for increased biofuel supply, as well as sufficient blending facilities and a compatible transport system.

Fuel retailers that will implement the 20% bioethanol blend are expected to have a dedicated storage tank and dispensing pump. Pump attendants should ensure that vehicles can handle the 20% bioethanol blend.

Biofuel producers are also encouraged to prepare for the expected increase in demand, such as ensuring access to sufficient feedstock.

In October, Energy Secretary Raphael P.M. Lotilla said increasing the ethanol blend could cut gasoline prices by as much as P1 a liter.

“This is primarily a price mitigation measure because ethanol, especially imported ethanol, is cheaper than the price of gasoline,” Mr. Lotilla said.

Terry L. Ridon, a public investment analyst, said raising the biodiesel blend would “broaden the utilization of coconut oil for biodiesel in the medium term.”

“However, both the government and the coconut industry will have to decide the best utilization of the nation’s coconut oil supply, as foreign buyers, such as the international cosmetics industry, will also compete for the same supply but may offer premium pricing,” he said in a Viber message.

Bienvenido S. Oplas, Jr., president of Minimal Government Thinkers, said higher biodiesel blend could drive food prices up.

“Corn and other crops should feed people and animals, not cars. It will have an adverse impact on food prices and could worsen instead of mitigate high food inflation,” he said in a Viber message.

Both analysts said the higher biodiesel blend might not necessarily lead to lower local oil prices because these still depend on the global market.

“World oil prices fluctuate up and down, but biodiesel mandates are permanent, with permanent price distortions,” Mr. Oplas said.

Mr. Ridon said the government should ensure that the higher blend is supported by domestic agricultural production. “It makes no sense to the local economy to undertake a higher mandatory percentage of bioethanol if the supply will be provided by imports.”

Higher prices of rice and meat were the main factors pushing prices upward this month, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

“Meanwhile, lower prices for agricultural items such as vegetables, fruits, and fish along with lower electricity rates and petroleum prices are expected to contribute to downward price pressures,” the BSP said.

Inflation was at 4.1% in November.

“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy decision-making,” it said. — Reuters

Data from the Bureau of the Treasury (BTr) released on Thursday showed the fiscal gap shrank by 24.8% from the P123.9-billion deficit in November 2022.

Month on month, the November deficit widened from the P34.4 billion in October.

“The National Government ran a P93.3-billion budget deficit in November 2023, declining by 24.75% (P30.7 billion) from a year ago due to the 2.82% growth in revenue collection alongside a 4.69% contraction in public spending,” the BTr said in a statement.

In November, revenue collections rose by 2.8% to P340.4 billion, from P331.1 billion in the same month in 2022.

Tax revenues declined by 8.9% year on year to P286 billion in November, amid a drop in collections by the Bureau of Internal Revenue (BIR) and Bureau of Customs.

BIR revenues decreased by 11% year on year to P210.2 billion last month, while Customs collections slipped by 2.7% to P73.7 billion. Other tax offices collected P2.1 billion, up 90.9% a year prior.

On the other hand, nontax revenues more than tripled to P54.4 billion in November, as the Treasury posted a 686% jump in revenues to P41.5 billion from just P5.3 billion last year. Other offices saw an 8.8% increase in revenues to P12.9 billion.

Income from the Treasury department was “primarily driven by higher dividend remittances and NG share from PAGCOR (Philippine Amusement and Gaming Corp.) income,” the BTr said. 

However, state spending slumped by 4.7% to P433.6 billion in November, from P455 billion a year ago.

The BTr attributed the decline to a drop in tax allotment shares of local government units, lower direct payments from development partners for foreign-assisted rail transport projects, as well as the different schedules of big-ticket disbursements for infrastructure and social welfare projects.

Primary spending — which refers to total expenditures minus interest payments — fell by 10.2% to P385.1 billion year on year from P428.9 billion. Meanwhile, interest payments rose 86% to P48.5 billion in November.

11-MONTH GAP
For the January-to-November period, the budget gap narrowed by 10.1% to P1.11 trillion from a year earlier. This represents 74.1% of the programmed P1.499-trillion deficit for the full year.

Revenue collection rose by an annual 8.8% to P3.6 trillion as of end-November, representing 95.58% of the P3.729-trillion target for 2023.

Tax revenues rose by 7.3% to P3.18 trillion, while nontax revenues climbed by 22.9% to P381.9 billion.

The BIR collections jumped by 8.6% to P2.34 trillion in the 11-month period, already accounting for 88.77% of the P2.64-trillion target.

Customs collections went up by 2.9% to P812 billion, which made up 93% of the full-year target of P874.2 billion.

BTr revenues increased by 46% to P216.3 billion as of end-November. This is more than triple the P58.3-billion program for the year, thanks to “higher dividend remittances, interest income from BTr’s managed funds and NG deposits, NG share from PAGCOR and MIAA (Manila International Airport Authority) profit, and government service income.”

Meanwhile, government spending went up by 3.6% to P4.68 trillion as of end-November, accounting for 89.42% of the full-year expenditure program.

For the 11-month period, primary spending increased by 1.32% to P4.1 trillion, while interest payments jumped by 23.6% to P567.7 billion.

“Our 2023 budget deficit estimate could reach P1.38 trillion that would fall short of the government’s program deficit target of P1.499 trillion,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

“Key assumption behind this sanguine fiscal deficit outlook is a government prioritizing deficit and debt management as we close the year amid higher interest rate pressures on cash disbursements,” he added.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a note said continued tax reform measures and intensified tax collections may lead to a narrower budget deficit, reduced borrowings, and slower increment in the outstanding National Government debt.

These new tax reforms would be complemented by easing inflation, especially if prices continued to stabilize towards the central bank’s 2-4% target in the coming months, he said. — Keisha B. Ta-asan

FOREIGN portfolio investments reverted to a net inflow in November, ending two straight months of outflows, as global financial market conditions improved, the Bangko Sentral ng Pilipinas (BSP) said.

Foreign portfolio investments registered with the BSP through authorized agent banks posted a net inflow of $672.86 million last month, 37.7% higher than the $488.75 million net inflow a year earlier.

The November figure was a turnaround from the $328.19 million net outflow in October.

Foreign portfolio investments are known as “hot money” because of the ease with which they can enter or exit a jurisdiction, as opposed to foreign direct investments.

In November, gross inflows jumped by 49.5% to $1.57 billion from $1.05 billion a year prior and by 64.9% from the $954.38 million posted in October.   

The BSP said investments came from the United Kingdom, Singapore, United States, Luxembourg, and Hong Kong, which together accounted for 91.9% of the monthly total.

The funds mainly went to peso government securities (71.4%), while the remaining 28.6% went to Philippine Stock Exchange-listed securities of banks, holding firms, property, transportation services, and food, beverage and tobacco.   

Meanwhile, gross outflows in November increased by 59.5% to $902.01 million from $565.71 million in November 2022.

Month on month, outflows fell by 29.7%.

The BSP said the United States received 58.6% of the total outward remittances in November.

China Banking Corp. Chief Economist Domini S. Velasquez in a Viber message said improving financial conditions globally likely drove investment inflows to emerging markets such as the Philippines.   

“Forward guidance from major central banks regarding reaching the peak of interest rate hikes has fueled bullish sentiment in financial markets. In the Philippines, there has been strong investor appetite for bonds and stocks, driving portfolio inflows,” she said.   

The US Federal Reserve has kept borrowing costs steady at 5.25-5.5% during its November meeting. Fed officials have recently signaled that policy tightening may be over amid slowing inflation. 

Back home, the BSP left its key interest rate unchanged at a 16-year high of 6.5% in November.

The Philippine central bank hiked rates by a total of 450 basis points from May 2022 to October this year to tame inflation.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the sharp decline in global crude oil prices, which largely helped bring down inflation, contributed to positive investor sentiment.   

“As a result, the worst/bottom has been seen already in the US and local financial markets in October 2023 and started to post hefty gains since November 2023,” he said in a note.

Headline inflation slowed to 4.1% in November from 4.9% in October. Inflation averaged 6.2% in the 11-month period.

“Thus, net foreign portfolio investments data improved to net inflows amid the gains in the local fixed income/bond markets, peso exchange rate, and stock markets; bargain-hunting/bottom-fishing activities in line with the gains in the US stock and bond/Treasuries markets,” Mr. Ricafort said.   

For the January to Nov. 30 period, foreign portfolio investments yielded a net outflow of $42 million, a reversal from the $794 million net inflow a year ago.

“With recent guidance from the Federal Reserve suggesting more interest rate cuts in 2024, we anticipate that inflows will continue, especially by December,” Ms. Velasquez said.   

Mr. Ricafort noted that hot money inflows could further improve in December amid market expectations of a possible Fed rate cut as early as March 2024.   

“Since Fed rate cuts would lead to further gains in the fixed income/bond markets, stock markets, and lower US dollar and stronger emerging market currencies,” he said.

Following its December meeting, Federal Reserve Chair Jerome H. Powell said monetary tightening may likely be over as inflation continues to fall in the US.   

Meanwhile, BSP Governor Eli M. Remolona, Jr. said Philippine inflation is not yet out of the woods, and borrowing costs may need to stay higher for longer in 2024.   

“Unless there are significant disruptions, it is likely that hot money inflows will surpass those of 2023, leading to continued positive momentum in 2024,” Ms. Velasquez added.

Earlier this month, the BSP lowered its hot money forecast to $1 billion net inflows this year from $2 billion previously.

PHILIPPINE economic growth will likely miss the government’s target next year amid external headwinds and risks that could derail the country’s recovery, analysts said.

To support growth, the government will need to focus on ramping up investments and ensuring inflation continues to ease, they added.

“The probability of recession is moderate, but everything must go right, including effective and efficient spending by the government, to achieve the target growth rate range,” Moody’s Analytics Chief Asia-Pacific Economist Steven Cochrane said in an e-mail.

The Development Budget Coordination Committee on Dec. 15 revised its growth target for 2024 to 6.5-7.5%, narrower than the previous 6.5-8% goal.

Most multilateral institutions’ gross domestic product (GDP) growth forecasts for the Philippines next year are below the government’s revised goal.

The World Bank expects Philippine GDP to expand by 5.8% in 2024, while the Asian Development Bank sees growth averaging 6.2% next year.

For its part, the International Monetary Fund (IMF) said the economy could grow by 6% in 2024, while the ASEAN+3 Macroeconomic Research Office sees GDP expanding by 6.3%, and the Organisation for Economic Co-operation and Development has a 6.1% growth forecast for the Philippines next year.

Latest data from the Philippine Statistics Authority (PSA) showed GDP growth averaged 5.5% in the first nine months of the year. To meet the lower end of the government’s 6-7% target for 2023, the economy must expand by 7.2% in the fourth quarter.

In 2022, Philippine GDP grew by a stronger-than-expected 7.6%, the highest since 1976.

Mr. Cochrane said he expects Philippine GDP growth to be below the government’s target in 2024.

“The greatest risks to the forecast that keep our baseline growth rate somewhat modest are the lack of consistency of fiscal spending and its resulting stimulus, the remaining potential for high inflation, and weak external demand for Philippine export products,” he said.

Elevated inflation will continue to be one of the biggest risks to growth next year, IMF Representative to the Philippines Ragnar Gudmundsson said.

“Downside risks could stem from persistently high inflation — globally and locally — that would necessitate further interest rate increases, an abrupt global slowdown that would dampen global trade, and an intensification of geopolitical tensions that could undermine the investment climate,” Mr. Gudmundsson said in an e-mail.

Headline inflation averaged 6.2% in the first 11 months of 2023, faster than 5.6% in the same period a year prior. This was above the central bank’s baseline forecast of 6% and target of 2-4% for 2023.

The Bangko Sentral ng Pilipinas (BSP) sees inflation easing to 3.7% in 2024 and to 3.2% in 2025.   

To help bring down inflation, the BSP raised benchmark borrowing costs by a total of 450 basis points from May 2022 to October 2023. It has since kept the policy rate at a 16-year high of 6.5% for two straight meetings.

BSP Governor Eli M. Remolona, Jr. this month said the Monetary Board sees the need to keep policy settings “sufficiently tight” until inflation settles within target.

“Inflation also has been quite volatile and could continue to be volatile depending upon the path of food-price inflation. Another spike in inflation would slow consumer spending and the broader economy,” Mr. Cochrane added.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said persistently high inflation could dampen consumption.

“Household consumption, which contributes the bulk to spending, has remained in expansion but has seen a gradual moderation in pace. The slower pace of expansion can be attributed to tight budgets amidst still elevated inflation,” he said in an e-mail.

Household spending typically accounts for three-fourths of GDP. In the third quarter, it grew by 5%, the slowest pace in two years.

“Meanwhile, the borrowing binge from the sustained rise in consumer loans will eventually take its toll on the households. We note spending on food items, which accounts for more than 20% of GDP, is now crawling at less than 1%,” Mr. Mapa added.

Weaker trade prospects may also affect growth, Mr. Cochrane said.

“While the risks to the global economy appear to be easing and global trade is slowly edging upward, the rebound in goods exports and service exports — including international tourism — is bound to be slow, at least through the first half of 2024,” he said.

Data from the PSA showed exports of goods and services grew by 2.6% in the third quarter, slower than 13.6% a year ago and 4.4% in the second quarter.

“Net exports, which was a key contributor to the surprise third-quarter GDP, delivering roughly 1.6 percentage points to GDP, will likely revert to weighing on overall GDP as early as the fourth quarter and going into 2024,” Mr. Mapa added.

Security Bank Corp. Chief Economist Robert Dan J. Roces also cited factors that could derail trade recovery next year, such as the slowdown in China.

“This is because the Philippines is a major exporter of goods, and China’s economic woes would lead to a decrease in demand for Philippine exports,” Mr. Roces said in an e-mail.

For the first 10 months of the year, the country’s trade in goods deficit narrowed by 11.9% to $44.07 billion from a year ago. Exports declined by 7.8% to $60.91 billion, while imports fell by 9.6% to $104.97 billion.

“Geopolitical tensions in the region also provide risks, such as the posturing in the South China Sea that could also have a negative impact on the Philippine economy. This is because businesses may be hesitant to invest in the Philippines if they are concerned about the stability of the region,” Mr. Roces added.

Mr. Mapa said higher government expenditures, which helped drive third-quarter GDP growth, may not be sustained in the long run.

“Government spending, which bounced back niftily in the third quarter, will stay in positive territory but we remain unsure whether fiscal authorities can provide the type of support to offset the slowdown in other factors,” he said.

“The 2024 budget is an increase from this year but we remain skeptical we will see a strong double-digit effort in terms of government spending with a rising proportion of expenditure going towards interest expenses,” he added.

Gross capital formation is also unlikely to be a major driver of growth, Mr. Mapa said.

“Capital formation turned negative in the third quarter and dropped to the worst downturn in more than 10 years, excluding of course COVID-19,” he said.

Elevated borrowing costs could also affect investments, he added.

The Philippines is prone to natural disasters such as typhoons and earthquakes, as well as weather phenomena like El Niño, Mr. Roces added, which could affect inflation.

Latest data from Philippine Atmospheric, Geophysical and Astronomical Services Administration showed that a strong El Niño is present in the tropical Pacific and is showing signs of further intensification in the coming months.

National Economic and Development Authority Secretary Arsenio M. Balisacan said that the El Niño weather event could potentially stoke inflation and fuel price pressures.

MODEST GROWTH SEEN
Despite lingering risks to the outlook, the country could still post modest GDP growth figures in 2024, the analysts said.

“We are cautiously optimistic that the Philippine economy will show decent growth in 2024,” Mr. Roces said. “There are a number of factors that are expected to contribute to the Philippines’ healthy growth in 2024.”

A rebound in consumer spending due to lower interest rates in the second half of the year and improved wages could boost domestic demand in 2024, he said.

“Second, the Philippine government has been working to improve the investment climate in the country, and these reforms should be able to attract more foreign investment to the Philippines,” Mr. Roces added.

Growth next year may be driven by accelerated public investments and improved external demand for exports, Mr. Gudmundsson said.

“Flagship infrastructure projects should notably benefit from stronger foreign direct investments and private sector participation through public-private partnership modalities,” he added.

Mr. Gudmundsson also cited positive spillovers from a resilient US economy and easing financial conditions, as these could support electronics and service exports and a rebound in domestic demand.

THE Anti-Money Laundering Council (AMLC) has required designated non-financial businesses and professions (DNFBPs) to report all suspicious transactions, whether completed or even just an attempt, as part of the fight against “dirty money” and terrorism financing.

AMLC’s Regulatory Issuance No. 2 amended the 2021 Financing Guidelines for DNFBPs which required them to file all covered and suspicious transaction reports (CTR/STR) with the dirty money watchdog.   

“DNFBPs shall file all CTRs and STRs, in accordance with the registration and reporting guidelines of the AMLC. STRs shall cover all transactions, whether completed or attempted,” the AMLC said.

The AMLC has earlier said that the DNFBPs guidelines apply to jewelry dealers, lawyers, law firms and accountants. It also includes company service providers that act on behalf of juridical persons or arrangements, or manage and arrange clients’ funds, investments and securities.

Under the guidelines, DNFBPs should file suspicious transaction reports to the AMLC on the next working day after the incident occurred.   

DNFBPs are given five working days to report all covered transactions, unless the AMLC prescribed a different period within the next 15 days from the occurrence of the incident.   

“DNFBPs shall… decide with finality whether to file an STR with the AMLC should the suspicion or suspicious nature of the transaction or activity be duly established or determined, or otherwise to document the non-filing thereof,” the AMLC said.   

“Should a transaction be determined to be both a covered transaction and a suspicious transaction, it shall be reported as a suspicious transaction,” it added.   

Meanwhile, lawyers and accountants are required to report any suspicious or unlawful activity to the AMLC, pursuant to Section 12, Canon 2 of the Code of Professional Responsibility and Accountability.

Lawyers and accountants who provide services as a business to third parties are also required to file CTRs and STRs to the AMLC if an incident occurs.

The AMLC assured that lawyers will not violate their duty of confidentiality when they disclose covered and suspicious transactions to the AMLC.   

“No administrative, criminal or civil proceedings shall lie against any person for having made a covered transaction or suspicious transaction report in the regular performance of his/her duties and in good faith, whether or not such reporting results in any criminal prosecution under the AML Act or any other Philippine law,” the AMLC said.   

However, independent lawyers and accountants who work for a private firm or act as a sole practitioner by providing purely legal and accounting services to clients are not required to file CTRs and STRs, it added.   

The Financial Action Task Force (FATF) describes DNFBPs as a group of entities that are involved in activities outside of the traditional financial sector but have the potential to be exploited for money laundering, terrorist financing, or other illicit financial activities.

The Philippines is hoping to exit the FATF’s “gray list” of jurisdictions under increased monitoring for dirty money risks by January next year. It has been on the gray list since June 2021.

To be removed from the gray list, the country committed to comply with several action plan items.

The FATF in its October update said the Philippines should continue to demonstrate effective risk-based supervision of DNFBPs and ensure that supervisors are using the proper anti-money laundering controls to mitigate risks associated with casino junkets. 

It also said the Philippines should enhance and streamline law enforcement agencies’ access to beneficial ownership information and ensure accurate and up-to-date information.   

The FATF noted the Philippines should also increase investigation and prosecution of cases related to money laundering and proliferation financing. — Keisha B. Ta-asan

ONLY FOUR GROUPS have submitted bids for the P170.6-billion public-private partnership (PPP) project to upgrade the Ninoy Aquino International Airport (NAIA), the Department of Transportation (DoTr) said on Wednesday.   

The DoTr identified the four bidders as the Manila International Airport Consortium (MIAC), Asia Airport Consortium, GMR Airports Consortium, and SMC SAP and Company Consortium.    

“This is a very important project of the government. This airport is very congested, and we are expecting that when we turn this airport to the private sector we can increase the capacity per annum,” Transportation Secretary Jaime J. Bautista said during the submission and opening of technical documents for the NAIA PPP project that was held online on Wednesday.

Eight groups had earlier purchased bid documents, but only four decided to submit their bids on Wednesday.

The MIAC consortium is composed of the companies owned by the country’s tycoons, namely Aboitiz InfraCapital, Inc. (AIC); Ayala-led AC Infrastructure Holdings Corp.; Andrew L. Tan’s Alliance Global InfraCorp Development, Inc.; Lucio Tan’s Asia’s Emerging Dragon Corp.; Gotianuns’ Filinvest Development Corp.; Gokongwei-led JG Summit Infrastructure Holdings Corp.; and GIP EM MIAC Pte., Ltd.

To recall, MIAC had previously submitted a P267-billion unsolicited proposal to operate and modernize the NAIA, but this was rejected by the government.

The GMR Airports Consortium is composed of GMR Airports International B.V.; Virata-led Cavitex Holdings, Inc.; and Yuchengco-led House of Investments, Inc. GMR Airports had partnered with Megawide Construction Corp. to operate the Mactan Cebu International Airport, but has since sold its stake to AIC.

The SMC SAP and Company Consortium is composed of San Miguel Holdings Corp.; RMM Asian Logistics, Inc.; RLW Aviation Development, Inc.; and Incheon International Airport Corp. The San Miguel group is currently building the New Manila International Airport in Bulacan. 

The Asian Airport Consortium is comprised of Lucio Co’s Cosco Capital, Inc.; Asian Infrastructure and Management Corp.; Philippine Skylanders International, Inc.; and  PT Angkasa Pura II.

Mr. Bautista said the DoTr will conduct a technical review of the bid submissions after 10 days which will be followed by a financial review.

He said the DoTr hopes to announce the winning bidder by the first quarter of next year.

The NAIA contract will initially cover 15 years, but can be extended by another 10 years. This will be under a rehabilitate-operate-expand-transfer arrangement, as provided for under the Build-Operate-and-Transfer law.

The project aims to increase the current annual passenger capacity of the NAIA to at least 62 million from the current 35 million.

“This would help further increase the air passenger and cargo capacity of NAIA that would help further boost local and foreign tourism in the country as a low hanging fruit that could be a major pillar for economic growth and development,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. — AEOJ

“This will ensure stable, if not lower, prices for these products, particularly during the El Niño next year which will hit our agriculture sector. This move is most welcome,” former Agriculture Undersecretary Fermin D. Adriano said in a Viber message.

President Ferdinand R. Marcos, Jr. last week signed Executive Order (EO) No. 50, which extends the reduced Most Favored Nation (MFN) tariff rates on rice, corn, and pork until Dec. 31, 2024.

The rates for rice imports will be kept at 35% for shipments both within or over the minimum access volume (MAV) quota.

Tariff rates for swine, fresh, chilled or frozen meat are retained at 15% for in-quota and 25% for out-quota imports.

Imports for corn maintained the MFN duty at 5% and 15% for in-quota and out-quota shipments, respectively.

“The present economic condition warrants the continued application of the reduced tariff rates on rice, corn, and meat of swine (fresh, chilled or frozen) to maintain affordable prices for the purpose of ensuring food security, managing inflationary pressures, help augment the supply of basic agricultural commodities in the country, and diversify the country’s market sources,” the EO stated.

There will also be a review of the tariff rates on rice, pork, and corn every six months, it added.

Philippine Chamber of Commerce and Industry President George T. Barcelon said that the lower tariff rates will help tame inflation.

“Extending the tariffs on key food commodities (will help) deal with inflation. That would help somewhat, because of the projected El Niño there could be price increases for these food commodities. I think that’s a good move,” he said via phone call.

In the first 11 months of the year, inflation averaged 6.2%. This was still above the central bank’s 6% full-year forecast and 2-4% target range.

“The reduced MFN tariff rates would help cushion agriculture and food production and supply and eventually price and inflation issues that may be brought by El Niño — a positive impact,” retired Pampanga State Agricultural University professor Roy S. Kempis said in a Viber message.

Mr. Kempis said that domestic production will be adversely affected by the dry weather event, particularly palay (unmilled rice) and corn.

“Supply would be compromised for these crops and eventually rice and feeds; following the value chain, feeds will also be a challenge — which uses corn as an ingredient to the extent of 70% per unit volume or weight, and pork may be more expensive,” he added.

The latest bulletin by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) showed that a strong El Niño is seen to persist in the country until January 2024.

The weather event increases the likelihood of below-normal rainfall conditions, which could bring dry spells and droughts in some areas of the country.

The state weather bureau also projected that by the end of May 2024, 65 provinces will experience a drought while six will face a dry spell.

PAGASA also reported in its latest crop condition assessment that most of the provinces in Luzon received “inadequate amounts of water required to support both the rice and corn crops.”

FRONTLOADING IMPORTS?
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan earlier recommended frontloading rice imports to mitigate inflationary pressures.

“Frontloading of imports next year is an act to bring in imported goods for the year at the earliest possible time. Since domestic supply grows as a result of the frontloading, prices tend to go down, thus, inflation is tamed,” Mr. Kempis said.

However, he noted that the scheduling of these frontloaded imports must be consistent with the country’s agricultural production patterns.

“Timing is important such that frontloading happens way before and/or months after domestic production is available for harvesting. This is a way of a counterbalance to have decent farmgate prices for palay, swine, and corn such that rice, pork, and feeds are reasonably priced,” he added.

The reduced tariff rates will also boost free trade and improve the country’s trade relations, Mr. Kempis said.

“The countries from where the Philippines gets its imported rice, pork, and corn are able to export more because Philippine importers find it cheaper to import the commodities involved, from these exporting countries,” he said.

On the other hand, Samahang Industriya ng Agrikultura Executive Director Jayson H. Cainglet said that the extension of lower tariffs will only benefit importers and traders.

“Local producers have nothing to do with the spiraling costs of staples, especially rice. Local traders and even those not usually involved in local production have been scrambling to source palay given the rising global prices of rice,” he said in a Viber message.

“It is this mindset of ‘importation as the only solution’ that has put us in this dire situation. The greatest tragedy of our times is this self-inflicted destruction of our capacity to produce our own food. The folly to rely on the global markets is again exposed as expensive, unreliable, and reckless,” he added.

Mr. Cainglet noted the foregone revenues from these tariff cuts, which could have been used to support the agriculture sector.

“There is a downside though in extending the reduced MFN treatment by the Philippines. Revenue collection primarily from import taxes on the above-said products that are covered by the reduced MFN tariff rates, is consequently reduced,” Mr. Kempis said. 

Mr. Kempis also said that there may be a need for more subsidies and overall government spending to manage the impacts of the weather event.

In 2019, the El Niño caused agricultural damage of up to P8 billion in the Philippines. — Luisa Maria Jacinta C. Jocson

REFORMS to improve the ease of doing business and the Philippines’ investment environment should be on the top of the agenda for the newly appointed special assistant to the President, analysts said.

The appointment of Frederick D. Go as the head of the Office of the Special Assistant to the President for Investment and Economic Affairs (OSAPIEA) has received widespread support from business groups that believe his private sector experience will be valuable in crafting government policy.

“Under his helm, we expect the full and expedited implementation of reform initiatives which will remove red tape and promote the ease of doing business in the country,” Anti-Red Tape Authority (ARTA) Secretary Ernesto V. Perez said in a Viber message.

American Chamber of Commerce of the Philippines Executive Director Ebb Hinchliffe welcomed Mr. Go’s appointment.

“In my interactions with (Mr. Go), I was encouraged by his desire to remove roadblocks to investment and to doing business in the Philippines,” Mr. Hinchliffe said in a Viber message.

“I am hopeful that this will translate into his new role and in the policies that the government’s economic cluster will pursue,” he added.

Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon said that Mr. Go will be “an effective overseer of investment plans for the country.”

“He is a well-seasoned businessman, and he has (experience) on what’s happening in retail business and realty business. The fact is being a businessman, his mindset is on the delivery of what is (best) for the business sector,” he said in a phone interview.

Earlier this month, President Ferdinand R. Marcos, Jr. signed Executive Order No. 49, which creates the OSAPIEA. It aims to “ensure effective integration, coordination and implementation of the various investment and economic policies and programs of the government.”

The special assistant to the President on investment and economic affairs will have the Cabinet-level rank of secretary and serve as chairperson of the Economic Development Group.

Mr. Go is relinquishing his role as president and chief executive officer of Robinsons Land Corp., effective Jan. 8, 2024.

“As a businessman whose leadership was vital in advancing various sectors, he has the advantage of understanding what needs to be prioritized and improved in government investment and economic policies to encourage more local and foreign investments,” ARTA’s Mr. Perez added.

Mr. Perez said he expects Mr. Go to formulate and implement new strategies to attract more investments with the support of the private sector.

“We are ready to assist them as they take the lead in fostering an inclusive, enabling and competitive business environment that will foster more local and foreign investments through our mandate under the Ease of Doing Business law,” he added.

Foreign Buyers Association of the Philippines President Robert M. Young said that since Mr. Go is coming from the private sector, he will be able to easily identify the key issues being faced by various industries.

“Being in the private sector, Secretary Go can relate to the problems in the private sector, of private players… He is a practitioner. Secretary Go will be the right person. We see him as the savior because he can relate to our problems,” he said in a phone call interview.

Mr. Barcelon said addressing high inflation and attracting investments should be among the priority areas that Mr. Go must focus on.

“He is aware that (high) inflation is something that we do not like… on investment, he must look at what key issues that need to be addressed for more investors to come in,” Mr. Barcelon added.

Mr. Young said that Mr. Go should be able to expedite key policies to improve the country’s investment climate.

“We have so many pending matters with the government that are not moving. Some for years and years already,” he said.

Mr. Young cited the Magna Carta for Micro, Small, and Medium Enterprises and policies to lower Customs fees to make exports more competitive, among others.

“I think he can solve all this. He will be able to target these issues. This is urgent because these can generate jobs, it can generate revenues for the Philippine economy,” he added.

Mr. Young also noted that Mr. Go’s position is crucial to coordinate strategies among agencies.

The Foundation for Economic Freedom (FEF) in a statement said that persistent inflation is among the top concerns that Mr. Go must immediately address.

“Mr. Go will only succeed if he can get the different egos of various departments to work together, set a realistic plan with a clear set of priorities and timetable, and marshal the political will, backed by the President, to execute this plan,” the FEF said.

“A coherent economic program and swift execution will boost investor confidence and stimulate the capital markets, which are now in the doldrums,” it added.

Meanwhile, GlobalSource Country Analyst Diwa C. Guinigundo said that Mr. Go must continue the government’s fiscal consolidation path.

“One major challenge to many governments, including the Philippines, is keeping fiscal and debt sustainability especially after the pandemic. Mr. Go’s competence will be tested on how he could orchestrate public policy formulation and execution to achieve economic growth while keeping debt levels manageable, and taxes more progressive than regressive,” he said in a brief dated Dec. 22

Mr. Guinigundo said that Mr. Go will need to keep the fiscal deficit under control, assess big-ticket infrastructure projects with “questionable priority and fiscal feasibility,” and ensure the budget is allocated to priority areas such as education, health, and food security, among others.

THE BANGKO SENTRAL ng Pilipinas (BSP) is streamlining rules for banks on the publication of their quarterly balance sheets, giving them a choice to publish either in print or online.

In Circular No. 1186 signed by BSP Governor Eli M. Remolona, Jr. on Dec. 21, a bank’s quarterly balance sheet report can either be published in print or online within 35 banking days following the end of the reference quarter.

“As an alternative mode of compliance…, a bank may upload its quarterly balance sheet and consolidated balance sheet on its website and shared for a period of at least one year,” the BSP circular stated.

“In addition to this, banks may also display a tabletop standee with QR (quick response) codes in a conspicuous place in the head office, all its branches and other offices, or through other digital/electronic means to make available their balance sheets, as applicable, in digital format,” it added.

The BSP previously required the publication of balance sheets for lenders with resources of P1 billion and above in a newspaper circulated in the city or province where the principal office is located.

The new rules now allow banks to publish their balance sheets in the printed or online version of a newspaper in general circulation.

The new circular stated that stand-alone small banks can publish their balance sheets in print or online version of a newspaper or post in the “most conspicuous area of its premises.” The printed copy must be of sufficient size and easily readable by the public and shared for a period of at least three months. 

Previous rules stated that thrift, rural, and cooperative banks with resources of less than P1 billion, should publish their balance sheets on a 12”x18” white paper in an area of its premises, such as in the municipal building, barangay hall, or a public market. 

Banks are required by the BSP to publish reports which reflect their financial condition, performance, corporate governance policies, and risk management strategies.

“It is the thrust of the Bangko Sentral to promote market discipline and greater transparency through the provision of comprehensive, relevant, reliable, and comparable disclosures,” the BSP said. 

The BSP said the bank’s board of directors must also ensure that information intended for public disclosure is supported by an effective internal control structure, has undergone review and approval by its management, and is compliant with governance processes. 

“The board of directors shall have the overall responsibility in ensuring that reports prescribed under this Section fully disclose the minimum information required. The board of directors may delegate its oversight function to a board-level committee,” it added.

China Bank Capital Corp. Managing Director Juan Paolo E. Colet said the amendments will benefit the banking industry and the investing public, as it gives the public more access to banks’ financial information.

“Online posting is not only cost-efficient for banks, but it also makes information more accessible to the public. The amendments also align with broader moves by the BSP and the banking industry toward increased digitalization of operations and the promotion of online channels for service delivery,” he said in a Viber message.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan said that online disclosure of financial information will benefit the public.

“Especially for publicly listed banks, this will create more accessibility to all participants who want to get as much readily available information as easily as possible,” he said in a Viber message.

The circular amends Section 175 of the Manual of Regulations for Banks. The prescribed reportorial template of the published or posted balance sheet for banks on both solo and consolidated bases is attached on the circular posted on BSP’s website. 

The circular will take effect in 15 days following its publication in the Official Gazette or in a newspaper.

Firms that submitted bids were the Manila International Airport Consortium, Asian Airport Consortium, GMR Airports Consortium, and SMC SAP & Co Consortium, the bids and awards committee said.

The transportation ministry will award in the first quarter the 15-year concession that is extendable by another 10 years. — Reuters

In a statement, the BoI said it had greenlit P1.16 trillion as of Dec. 18, 59% up from P729 billion approved in 2022.

“There are three more projects worth about P350 billion that are currently being assessed and, if they are able to comply with both the substantive and transparency requirements, they may be able to make it to the BoI Board and Mancom deliberations on Dec. 28 — our last for the year,” Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo said in a statement.

The P1.16-trillion figure so far is still 29% below the revised P1.5-trillion investment approval target set by the Department of Trade and Industry (DTI) for the year. The DTI earlier upwardly revised the BoI’s initial P1-trillion target for 2023.

“The BoI hitting P1.16 trillion for 2023 reaffirms strong investor confidence in the administration of President Ferdinand R. Marcos, Jr. — their responsiveness to the policy initiatives of the President and the effectiveness of the aggressive investment promotion activities,” Trade Secretary and BoI Chairman Alfredo E. Pascual said.

“We are all-the-more optimistic about opportunities that lie ahead in 2024, with the BoI poised to further catalyze smart- and sustainability-driven investments in the country,” he added.

Domestic approvals hit P398.76 billion, accounting for 34% of the total approvals, and 26% higher than the year-ago figures.

On the other hand, foreign investment approvals soared by 452% to P763.22 billion this year.

The BoI said it approved P968.14 billion worth of investments for the renewable energy and power sector, accounting for 83.45% of the total for the year.

This was more than double the P409.03 billion investments approved a year ago, as the Philippine government allowed full foreign ownership in the renewable energy (RE) sector starting November 2022.

Foreign nationals and foreign-owned entities are now allowed to explore, develop and use RE resources in the country such as solar, wind, biomass, ocean or tidal energy. Foreign ownership of RE projects was previously limited to 40%.

“Noteworthy projects approved for January to December were seven offshore wind power projects located in Cavite, Laguna, Dagupan, San Miguel Bay, Negros, and Northern Samar, amounting to a total of P759.84 billion,” it added.

Mr. Pascual, in June, said that investments in renewable energy projects could make up about a third of the agency’s investment approval targets for the year.

Meanwhile, the BoI approved P96.16 billion worth of projects in the information and communication sector this year.

The manufacturing sector had P22.03 billion worth of approved investments, while infrastructure (toll roads) had P20 billion, and P15.63 billion was for mass housing.

The BoI said these investment approvals are expected to generate 47,195 jobs from a total of 303 projects.

In terms of domestic investments, Western Visayas made up the largest share with P316.89 billion worth of investments, followed by Calabarzon (P211.89 billion), Bicol Region (P162.92 billion), Eastern Visayas (P128.62 billion) and Ilocos Region (P122.18 billion).

Meanwhile, foreign investments from Germany contributed the largest share with P393.28 billion, followed by the Netherlands with P333.61 billion, Singapore with P17.38 billion, and the United States with P3.38 billion. — A.H. Halili

THE PHILIPPINES’ external debt service burden more than doubled in the January-to-September period, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP).        

Based on data posted on the BSP’s website, the country’s debt service burden on its external borrowings skyrocketed by 130.7% to $10.846 billion from $4.702 billion in the same period in 2022.   

Month on month, it rose by 22% from $8.89 billion recorded as of end-August.   

As of end-September, the debt service burden is equivalent to 3.5% of gross domestic product (GDP), higher than 1.6% recorded in the comparable year-ago period.

The debt service burden refers to the amount of money a country needs to pay back its foreign creditors. It includes both the principal and interest payments on its external debt.   

BSP data showed principal payments jumped by 110.6% to $5.861 billion in the January-to-September period from $2.78 billion during the same period in 2022.   

Interest payments surged by 159.7% to $4.985 billion in the first nine months of the year from $1.919 billion a year ago.

Principal external debt service is mostly fixed medium- to long-term credit, while interest payments are on fixed and revolving short-term credit from banks and nonbanks.

“The sharp increase in foreign debt payments may have to do with increased foreign borrowings by the government since last year amid the need to hedge against rising interest rates as well as to diversify its sources of borrowings/funding in the global markets, both from commercial and multilateral sources,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.   

Central banks across the world have tightened monetary policy to tame inflation. The BSP was regarded as one of the most aggressive central banks in the region after it hiked the key interest rate by 450 basis points (bps) from May 2022 to October 2023.    

Meanwhile, separate BSP data showed the country’s outstanding external debt increased by 10.1% to $118.833 billion at end-September from $107.91 billion in the same period a year ago. It also inched up by 0.8% from $117.9 billion as of end-June.

External debt refers to all types of borrowings by Philippine residents from nonresidents, following the residency criterion for international statistics.

The external debt ratio, or the external debt as a percentage of GDP, was equivalent to 28.1% of GDP. This was slightly lower than 28.5% in the previous quarter.

“For the coming months, external debt servicing costs could remain elevated amid increased foreign borrowings in recent months amid the further diversification of the government’s funding sources in global markets as well as to provide continued supply/liquidity of Philippine sovereign bonds in the world market as part of capital market development,” Mr. Ricafort said.   

However, possible rate cuts from both the US Federal Reserve and the Monetary Board due to easing inflation may help mitigate external debt servicing costs, he added.   

BSP Governor Eli M. Remolona, Jr. earlier said the BSP is unlikely to cut interest rates in the coming months, as monetary policy in the Philippines is in a “higher for longer” scenario.   

The Monetary Board kept its benchmark rate at a 16-year high of 6.5% for a second straight meeting during its December meeting. Interest rates on the overnight deposit and lending facilities were also left unchanged at 6% and 7%, respectively.

Policy easing will only be considered if inflation and inflation expectations are within a “comfortable” range, Mr. Remolona added.   

Headline inflation eased to 4.1% in November and brought the 11-month inflation average to 6.2%. November marked the 20^th straight month that inflation breached the BSP’s 2-4% target band for this year.

The central bank expects inflation to average 6% this year.   

EXPORTERS lack the knowledge to tap trade agreements and face a higher cost of doing business in the Philippines, rendering their products uncompetitive relative to other countries’ exports, a business group said.

The Philippine Chamber of Commerce and Industry said cost-of-doing-business issues center on high power and logistics costs.

“The cost of doing business is still quite high (here) compared to the other countries… These are some of the issues that the government has to address for us to really gain full benefit from (taking advantage of) free trade agreements (FTAs),” PCCI President George T. Barcelon told BusinessWorld by phone.

Mr. Barcelon said that aside from incentives, the Philippines must seek to be a competitive market as it is yet to see strong, sustained inflows of foreign direct investment (FDIs).

“It is top of mind in our meeting with the Anti-Red Tape Authority and foreign chambers that there are these issues to be addressed,” he said.

“As of now, we are not seeing any real good inflow of FDIs as investments are still headed towards Vietnam, Indonesia, and Thailand. This is something that needs work,” he added.

Net inflows of FDI slumped to their lowest level in over three years, amounting to $422 million in September. This was 42.2% lower year on year and down by 46.5% from a month prior.

This brought the FDI net inflows to $5.9 billion in the first nine months of the year, representing a 15.9% decline from a year earlier.

Mr. Barcelon said that the Philippines must upskill its workers to move its products higher up the value ladder.

“Once we have increased to a higher value, be it agricultural or electronic products… the other thing that I think the government must be aware is the cost of compliance and permits,” he said.

He said that the added costs do not align with the government’s target of rightsizing the bureaucracy.

“What businesses see is that there is more bureaucracy, and bureaucracy sometimes can be interpreted as the flip side of corruption,” he added.

Last year, the Philippines improved its ranking on the global corruption index compiled by Transparency International. It placed 116^th out of 180 countries in the 2022 Corruption Perceptions Index, a spot higher than its worst-ever showing of 117^th place in 2021.

Despite the improvement in ranking, the Philippine score was 33, its lowest ever in the index and below the global average of 43 and the Asia-Pacific average of 45.

TRADE DEALS
Trade and Industry Undersecretary Allan B. Gepty said some investment must be made in navigating the preferential arrangements and their compliance rules to be in a position to access trade agreements.

“There are still many businesses who are not that aware of these preferential arrangements, including compliance procedures,” Mr. Gepty said in a Viber message.

“The continuing program is for advocacy and education so that exporters can avail of the preferential arrangements and other businesses can be encouraged to export or even do business in other countries,” he added.

Mr. Gepty said the Department of Trade and Industry (DTI) plans to sustain its campaign to inform and educate stakeholders on the benefits of FTAs such as the Regional Comprehensive Economic Partnership (RCEP) and other preferential agreements such as the European Union’s (EU) Generalised Scheme of Preferences Plus (GSP+).

The Philippines has been a beneficiary of the GSP+, a special trade scheme for vulnerable low- and lower-middle-income countries, since 2014. GSP+ grants zero duties on 6,274 Philippine products.

The current arrangement was set to expire by the end of 2023. However, the Council of EU Member States and the European Parliament amended the GSP scheme to extend it to 2027.

Under the current scheme, eligible countries, such as the Philippines, will have to comply with 27 international conventions on human rights, labor rights, climate action, and good governance.

The Philippines was threatened with the loss of its GSP+ status during the Duterte administration due to European concern over extrajudicial killings and alleged human rights violations.

The Duterte administration’s “war on drugs” was condemned by the European Parliament in a resolution passed in February 2022, which asked the country to act on human rights abuses.

On the other hand, RCEP, the world’s biggest FTA involving a third of the global economy, counts among its members Association of Southeast Asian Nations, Australia, China, Japan, New Zealand, and South Korea.

The deal aims to increase trade among RCEP participants by allowing minimal to zero restrictions on shipment volumes, tariffs, and import taxes.

The Philippines was the last participating country to ratify the FTA on June 2, more than two and a half years since the participating countries concluded the deal in November 2020.

Mr. Gepty said that the late ratification is one of the reasons why it is still too early to assess RCEP utilization in the Philippines.

“Since its implementation in the Philippines only started in June, it would still be too early to gather and process data. We are coordinating with concerned agencies to gather relevant data for purposes of monitoring,” he said.

Mr. Barcelon added: “RCEP was just ratified in the middle of the year, so it will take some time to really get the benefits from it.”

He said that most RCEP countries are already Philippine trading partners.

“Some of the benefits that I would see are for our agricultural sector to be able to expand their market in Japan, among others,” he added, citing the benefits of the lowered tariffs for Philippine produce under RCEP.

Tereso O. Panga, director-general of the Philippine Economic Zone Authority (PEZA), said there has been an increase in investment approvals from some RCEP countries.

“There has been a marked increase in our ecozone investment approvals this year from Australia and China, countries we consider in PEZA as non-traditional sources of economic zone (ecozone) FDI and exports,” Mr. Panga said in a Viber message.

“Clearly, we can attribute this trade and investment market diversification to the country’s recent accession to RCEP,” he added.

PEZA reported that approved investments from Australia more than doubled to P772.82 million in the first 11 months while investments from China grew 65.8% to P1.28 billion during the period.

“With the entry of more Chinese and Australian investors, we can expect these locators to be exporting their products and services back to their principal headquarters or to other RCEP member countries to take advantage of the lower trade barriers and improved market access from trading partners,” Mr. Panga said.

He said that the increase in investment after the implementation of trade agreements was also seen in the case of European countries.

“We see the same trend with the huge growth in ecozone FDI from EU member countries. In addition, we expect our ecozone exports to the EU to likewise achieve a significant increase given the latter’s continued grant of GSP+ privileges to Philippine exporters,” he said.

“With PEZA accounting for more than 60% of the exports of goods and commodities, we are pursuing more locators seeking to avail of the benefits under RCEP and the proposed EU-Philippines FTA to grow their operations in the country,” he added.

In the first 11 months, PEZA approved P16.56 billion in investments from EU member countries, sharply higher compared with the P2.44 billion in approvals a year earlier.

Philip Dupuis, head of trade for the EU Delegation to the Philippines, said the Philippines retains the potential to more fully utilize GSP+.

“Utilization by the Philippines… has been relatively good. I think we are utilizing two-thirds of the eligible exports, more or less, if I remember well, but it could be better,” Mr. Dupuis said in a chance interview.

He said that it is important to determine whether exporters have an ingrained preference for trading with nearby or familiar markets.

“I think there is a lot of work for us to do in terms of making the European market better known, but the companies also need to inform themselves because all the materials are there,” he said.

“Obviously, if you are satisfied with your exports to Japan and the US, then you don’t necessarily look at the EU market. But I think the potential is there; there is potential to grow for Philippine companies in Europe,” he added.

Mr. Dupuis also said that the EU legislators are still looking to update the GSP+ scheme after the current deal’s extension, as the EU Council and Parliament have yet to reach agreement on updating GSP rules.

The EU and the Philippines have also resumed talks for an FTA since the suspension of the negotiations in 2017. Negotiations were put on hold due to issues over intellectual property rights and data exclusivity, among others.

The two parties are expected to complete the initial phase of the negotiations by the end of December, which involves the identification of the chapters that would form part of the FTA.

The two first launched negotiations for an FTA in 2015.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that there is also a need to push the participation of micro, small, and medium enterprises (MSMEs) to further increase utilization of GSP+.

“Some MSMEs that are part of the export supply chain and ecosystem have yet to maximize the potential of GSP+,” Mr. Ricafort said in a Viber message.

He added that supporting “online businesses and transactions would also be able to maximize the economic benefits and potential of these FTAs, given their immense possibilities to expand export markets.”

Mr. Ricafort said FTAs are helpful for effectively expanding the markets of Philippine exporters at much reduced cost, making them more competitively priced.

He said such trade deals also attract more investment, with investors from nearby countries using the Philippines as a stepping stone to access the benefits of preferential agreements such as GSP+.