Weighing existing risks in the Philippine market

Risk management is one of the most basic fundamentals of financial literacy. It means that, no matter the investment, there should always be contingencies for any unforeseen events. No one will ever know what life throws your way, after all.

This goes for both the individual and the enterprise level. Just as any person should have some measure of security to protect against financial emergencies, whether through insurance or otherwise, businesses are expected to take into account potential risks and concerns when devising their strategies.

Doing business in the Philippines is a double-edged sword in that regard. On the one hand, even as the country records the slowest growth it has seen in almost 12 years in the second quarter of 2023, it is still poised to outpace many of its neighbors in Southeast Asia.

According to the World Bank, despite recently lowering its forecast for the Philippines from 6.0% to 5.6%, the Philippine economy is still expected to grow faster than Cambodia (5.5%), Indonesia (5%), Vietnam (4.7%), Malaysia (3.9%), Laos (3.7%), Thailand (3.4%), and Myanmar (3%).

National Economic and Development Authority Secretary Arsenio M. Balisacan is even optimistic the country can achieve the lower end of its 6% to 7% target growth range, provided the government spending ramps up for the rest of the year.

On the other hand, the Philippines is seemingly beset on all sides by risk and conflict. The ASEAN+3 Macroeconomic Research Office (AMRO), an international organization aiming to secure the macroeconomic and financial resilience and stability of the ASEAN+3 region, identified several immediate and long-term risks that may hinder the country’s growth moving forward.

In a preliminary assessment made by AMRO during its Annual Consultation Visit to the Philippines from Aug. 29 to Sept. 8, it found that such risks include: high inflation, especially due to local supply shocks in the food sector; economic slowdown in major trading partners and volatility in the global financial market; the scarring effects of the pandemic; the pace of infrastructure development; geopolitical risks; and the economic losses from natural disasters, which are being exacerbated by climate change.

Data released by the Philippine Statistics Authority put inflation at 6.1% in September, rising for the second month in a row. Inflation was recorded at 5.3% in August, changing course from the downward trend since the start of the year.

Inflation has averaged 6.6% so far this year, well outside the government’s 2%-4% goal range. January’s 8.7% rate is still the highest of the year.

According to the PSA, the rise in September’s inflation was primarily due to food and non-alcoholic beverages, more specifically cereals and cereal goods (14.1%). Because rice is weighed more heavily in the commodities basket, rice’s price volatility has a greater impact on total inflation rates.

Inflation in rice reached a 14-year high of 17.9% in September, despite President Ferdinand Marcos Jr.’s determination to enforce price restrictions on rice. This measure did not make much of an impact as, according to the PSA, most of the regular-milled and well-milled rice varieties observed in September did not adhere to the price limitations.

Fuel price increases also contributed to the inflationary trend. Gas prices have risen steadily throughout the month of September that the government has released P2.95 billion to subsidize fuel for public utility vehicles.

Moreover, jeepney tickets are increasing by P1 across the country. Both the higher rates for commuters and the indirect raising of expenses for Filipinos who utilize jeepneys as a mode of transportation might push inflation higher in the coming months.

Meanwhile, the Philippines continues to suffer from the adverse effects of climate change, the most recent of which was Typhoon Jenny earlier this month, with winds reaching up to 89 to 117 kilometers per hour, and posing significant threat to life and property.

In 2022, worsening tropical cyclones caused around P25.03 billion worth of damages, according to Statista. PAGASA expects four to seven tropical cyclones to form within or enter Philippine territory from October this year to March 2024.

Opportunities amid uncertainty

Yet, as mentioned before, the Philippines is in a much more favorable position to weather risks than others. Finance Secretary Benjamin E. Diokno, for instance, said that the Philippine economy would be less affected by the economic slowdown of China, despite such a slowdown dampening global trade and exerting downward pressure on the country’s goods and service exports.

“The Philippines is expected to be less affected by China’s slower economic growth given that the potential slowdown in exports could be partially mitigated by the demand from our large domestic market,” he said during the ASEAN Roundtable at the World Bank-International Monetary Fund (IMF) Annual Meetings in Marrakech, Morocco on Oct. 11.

Moreover, infrastructure spending is expected to ramp up in the fourth quarter of 2023 to boost the local economy. State spending soared 65.8% in August as the government ramped up the implementation of projects.

In its latest National Government (NG) disbursement report, the Department of Budget and Management (DBM) said infrastructure and other capital outlays jumped to P122.1 billion in August from P73.7 billion in the same month a year ago. Month-on-month, infrastructure spending also rose by 10% from P111 billion in July.

“This was largely attributed to the disbursements made by the Department of Public Works and Highways (DPWH) for its completed projects nationwide, such as national roads and bridges, infrastructure projects, flood control projects, convergence programs, and payment of right-of-way claims,” the DBM said.

Of course, much more needs to be done to secure the Philippines’ economic outlook over the medium to long term. Particularly, as the country recovers from the scars left by the pandemic and moves into a future that is threatened by external risks like climate change and geopolitical conflict, it will be necessary to invest in and create the foundations for sustainable economic growth. — Bjorn Biel M. Beltran