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The Philippines’ gross international reserves (GIR) rose to a record high at end-September, the Bangko Sentral ng Pilipinas (BSP) said on Monday.   

Central bank data showed dollar reserves increased by 3.8% to USD 112 billion at the end of September from USD 107.9 billion at the end of August.

“The month-on-month increase in the GIR level reflected mainly the National Government’s (NG) net foreign currency deposits with the BSP, which include proceeds from the NG issuance of Republic of the Philippines global bonds,” the BSP said in a statement.

In August, the NG raised USD 2.5 billion from its sale of triple-tranche US dollar-denominated global bonds. This was the government’s second global bond offering this year.

Year on year, gross international reserves jumped by 14.2% from USD 98.1 billion.

BSP data showed the level of dollar reserves was enough to cover about 6.3 times the country’s short-term external debt based on original maturity and 4.4 times based on residual maturity.

It was also equivalent to 8.1 months’ worth of imports of goods and payments of services and primary income.

Ample foreign exchange buffers protect an economy from market volatility and ensure that a country can pay its debts in the event of an economic downturn.

VALUATION OF GOLD RESERVES RISE

The central bank also attributed the rise in dollar reserves to “upward valuation adjustments in the BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad.”

The central bank’s foreign investments went up by 2.4% to USD 94.5 billion as of September from USD 92.3 billion in the previous month. Year on year, foreign investments climbed by 13.9% from USD 83 billion.

Reserves in the form of gold were valued at USD 10.9 billion as of end-September, up by 6.9% from USD 10.2 billion as of end-August. It was also higher by 11.2% from USD 9.8 billion a year ago.

The BSP earlier defended its sale of gold holdings in the first half, saying that it took advantage of favorable prices as part of its active management strategy.

The sale of gold had “generated additional income without compromising the primary objectives for holding gold, which are insurance and safety,” it added.

Data from the central bank showed foreign currency deposits soared by 157% to USD 2.03 billion in September from USD 789.5 million a month earlier. It likewise surged from USD 834.4 million in the previous year.

Net international reserves increased to USD 112 billion at end-September from USD 107.8 billion at end-August, the BSP said.

Net international reserves are the difference between the BSP’s reserve assets or GIR and reserve liabilities, such as short-term foreign debt and credit and loans from the International Monetary Fund (IMF).

The country’s reserve position in the IMF inched up by 0.7% to USD 731.1 million as of September from USD 725.9 million in the prior month but declined by 6% from USD 778.1 million a year ago.

Special drawing rights — the amount the country can tap from the IMF — was unchanged at UDS 3.85 billion for the second straight month.

“It’s very possible the BSP proactively built up its GIR. If not for some healthy FX (foreign exchange) market intervention, the peso would have overshot (strengthened) too quickly,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a Viber message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said international reserves increased due to proceeds from the NG’s dollar bond issuance, as well as continued growth in remittances, foreign tourism receipts, and foreign direct investments.

“The country’s strong external position would also support the country’s favorable credit ratings of one to three notches above the minimum investment grade,” he added.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, likewise said this was mainly due to the surge in remittances.

“It’s that time of the year again when remittances surge as the holiday season enters, the enrollment period comes in. Also, returns and dividends to foreign investments are being collected,” he said via Viber message.

“The sale of gold may have also contributed when the BSP did asset reclassification from gold to US dollars. In short, there have been inflows recently,” he added.

In the January-July period, cash remittances went up by 2.9% year on year to USD 19.332 billion.

Mr. Neri noted that the start of the US Federal Reserve’s  easing cycle also supported the GIR.

“The space to build import cover and debt coverage usually opens up whenever the Federal Reserve pivots to policy easing,” he said.

The US central bank reduced its benchmark policy rate by 50 basis points (bps) to the 4.75%-5% range in September, its first rate cut in four years.

“The import cover is more than double the international standard of 3-4 months that would continue to provide buffer support for the peso exchange rate,” Mr. Ricafort added.

Mr. Neri said the current USD 112-billion GIR level is just around USD 20 billion less than the country’s external debt.

Outstanding external debt hit a record USD 130.182 billion at the end of June, separate data from the BSP showed.

“With more US rate cuts expected, the BSP can accumulate further as long as it doesn’t cut the reverse repurchase rate much more aggressively than the Fed,” Mr. Neri added.

BSP chief Eli M. Remolona, Jr. has said the Monetary Board can possibly deliver 25-bps rate cuts at its remaining two meetings this year on Oct. 16 and Dec. 19.

The BSP expects the country’s GIR to hit USD 106 billion by end-2024. – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines and South Korea on Monday signed six agreements, including one that calls for a feasibility study on the rehabilitation of the mothballed Bataan Nuclear Power Plant (BNPP), as they upgraded bilateral ties to a strategic partnership.

At the center of this development is the effort by the two nations to boost bilateral trade, especially after the Philippine Senate last month ratified the free trade agreement (FTA) with South Korea.

“The time has come for us to elevate the ties between the Philippines and the Republic of Korea to a strategic relationship,” President Ferdinand R. Marcos, Jr. told South Korean President Yoon Suk Yeol during a bilateral meeting at the Presidential Palace in Manila.

“As the geopolitical environment is only becoming more complex, we must work together to achieve prosperity for our peoples and to promote a rules-based order governed by international law,” he said, citing the 1982  United Nations Convention on the Law of the Sea (UNCLOS) and the 2016 arbitration ruling that invalidated China’s expansive claims in the South China Sea.

Mr. Yoon arrived on Sunday for a two-day visit to the Philippines, the first leg of his three-nation Southeast Asian trip. He and his wife Kim Keon Hee visited the Korean War Memorial Hall at the Libingan Ng Mga Bayani to pay tribute to Filipino soldiers who died during the 1950-53 Korean War. Around 7,400 Philippine troops were deployed to Korea during the war, 112 of whom were killed.

Mr. Yoon said his visit was an “opportunity to not only further enhance our trade and economic cooperation, but also widen the scope of our partnership to include future-oriented sectors such as security, digital technology, and energy.”

During their meeting, Mr. Marcos and Mr. Yoon signed several memoranda of understanding  (MoU), including one for the conduct of a feasibility study of the Bataan Nuclear Power Plant, which was completed in 1985 but was never used due to safety concerns.

The Department of Energy said the two-phase feasibility study that will commence in January is designed to generate critical information to guide the Philippine government’s decision-making process not only on the BNPP but also in “exploring other nuclear technologies and potential alternative sites for nuclear energy development.”

“This study will play a key role in assessing the feasibility, safety, and sustainability of various nuclear energy options, helping the government make well-informed choices that align with the country’s long-term energy goals,” the DoE said in a statement.

All costs associated with the feasibility study will be shouldered by the Korea Hydro & Nuclear Power Co., Ltd. (KHNP) while the Philippine government is “under no legal obligation to proceed with the rehabilitation of the BNPP or to engage KHNP based on the study’s findings,” it added.

“The study is exploratory in nature, and any subsequent actions will be subject to further evaluation and decision by the government,” it said.

The DoE said the first phase of the study will involve an assessment of the BNPP’s condition, while the second phase will involve an evaluation on whether or not the plant can be refurbished using the most optimal model.

SECURITY
Following their bilateral meeting, Mr. Yoon said the two nations agreed to “strengthen strategic partnership  on the security front,” with Seoul vowing to take an active part in the third phase of the modernization program for the Armed Forces of the Philippines.

“Also based on the maritime cooperation MoU signed today, our two countries will reinforce maritime security partnership in such areas as tackling transnational crime, information sharing and conducting search and rescue missions,” he added.

Mr. Yoon said he and his Philippine counterpart also agreed to “work together in order to deliver tangible benefits to the citizens of both countries by stepping up economic cooperation.”

Bilateral trade between the two nations hit USD 17.5 billion in 2022, USD 12.3 billion of which were exports and USD 5.2 billion were imports, according to data from South Korea’s foreign ministry.

The Philippine Senate in September ratified the FTA between the Philippines and South Korea. South Korea’s National Assembly has yet to ratify the deal.

Mr. Yoon said he and Mr. Marcos agreed to make sure the FTA enters into force “at the earliest date possible.”

Manila and Seoul also signed MoUs on an economic innovation partnership program, which seeks to advance national, regional, and urban development in the Philippines, and for strategic cooperation on critical raw material supply chains.

They also signed a loan agreement for the Samar Coastal Road II Project, as well as MoUs for the Laguna Lakeshore Road Network Project Phase I (Stage I) and the Panay-Guimaras-Negros Island Bridges Project.

The Philippines and South Korea also signed an MoU to boost maritime cooperation between their coast guards.

The Philippine Coast Guard (PCG) has been at the receiving end of China’s aggression into Manila’s exclusive economic zone in the South China Sea, which Beijing claims almost in its entirety based on a 1940s map that a 2016 arbitration award said had no basis.

Joshua Bernard B. Espeña, vice-president at the Manila-based International Development and Security Cooperation, said helping boost the PCG is strategic for Seoul since it’s known for shipbuilding and as it has a growing concern over China’s aggression at sea.

“The Republic of Korea, like others, realizes that China frames its creeping invasion of the waters as a matter of law enforcement. So, anything that can counter such a feat is needed, like in the case of boosting PCG capabilities, whose principal surface combatants are limited,” he said in a Facebook Messenger chart.

Mr. Espeña said the strategic partnership between the Philippines and South Korea is timely “given how the two states have been diversifying their relations with other regional states.”

The Philippines and South Korea are also US allies which share common concerns over China, “a revisionist power against the rules-based order,” Mr. Espeña said.

Aside from Mr. Yoon’s visit, Seoul had initiated 10 high-level engagements with Manila since 2010, most of which were in 2015, according to its foreign ministry.

“Seoul and Manila are not treaty allies, but since they are co-US allies confronted by a revisionist power, a more flexible yet proactive approach is needed,” Mr. Espeña said, noting that the six deals signed between the countries were largely addressing development issues.

The Philippines under Mr. Marcos has been active in condemning nuclear threats from North Korea, saying in July that its ballistic missile test provoked “tensions” and undermined “economic progress, peace, and stability in the Korean Peninsula and the lndo-Pacific region.”

“South Korea is becoming a more strategic economic and security partner given the geopolitical issues in the South China Sea and also in East Asia,” said Philip Arnold P. Tuaño, dean of the Ateneo School of Government.

Mr. Tuaño said via Messenger chat that it is important for the Philippines to strengthen its alliance with partners to ensure security issues are adddressed.

“South Korea has been seen to be an important supplier of maritime and aeronautical defensive capabilities and an important technological partner to strengthen our manufacturing capacities,” he said.

Mr. Marcos, speaking at a business forum organized by the Philippine Chamber of Commerce and Industry and the Federation of Korean Industries, touted that the Philippine Congress was already at the last stages of the legislative process to enact a bill that seeks to further lower corporate income tax.

“Anchored on the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act of 2021, it will further strengthen our fiscal and non-fiscal incentives in strategic industries,” he said in a speech.

The bill seeks to simplify the approval process for tax deductions, streamline the value-added tax refund system, and align tax incentives with global standards.

“We aim to make the Philippines a top destination for sustainability, and to be sustainable in our strategic investments,” he said. – Kyle Aristophere T. Atienza, Reporter

The Development Budget Coordination Committee (DBCC) may raise the gross domestic product (GDP) growth target for this year amid slowing inflation and improved government spending, Budget Secretary Amenah F. Pangandaman said on Monday.

This comes after inflation slowed to below 2% in September as food and transport costs declined.

“Given this new development, I actually asked the team already, maybe we can have a special DBCC (meeting) again and we’ll try to look at the numbers,” Ms. Pangandaman, who chairs the DBCC, told reporters on the sidelines of an event.

She noted the DBCC can hold a special, off-cycle meeting within the fourth quarter.

“Maybe we can do it this quarter, especially that the budget is going to be passed soon,” she said in mixed English and Filipino.

The House of Representatives on Sept. 25 approved on final reading the P6.352-trillion national budget for 2025. The Senate plans to approve its version of the General Appropriations Bill by the second week of December.

Asked if economic managers will likely raise this year’s growth target, Ms. Pangandaman said: “Maybe we can revise upward. Let’s see.”

At its last meeting in June, the DBCC retained the 6-7% GDP growth target.

The original target of 6.5-7.5% growth was lowered at the DBCC’s meeting in April, as economic managers took into account ongoing trade and geopolitical tensions and the 5.6% GDP expansion in 2023.

“So, maybe we can review our targets again and hopefully, we will catch up on all the targets that we have,” Ms. Pangandaman said.

The DBCC also targets 6.5-7.5% GDP growth for 2025, and 6.5-8% from 2026 to 2028.

The Budget chief said the September inflation print may prompt the DBCC to revisit its macroeconomic assumptions and targets.

“We’re very happy. So, I think all our reforms are taking place now,” Ms. Pangandaman said, citing the lower import tariffs on rice.

Headline inflation slowed to 1.9% year on year in September from 3.3% in August and 6.1% a year ago. The September print was the slowest in over four years (52 months) or since the 1.6% print in May 2020.

In the first nine months, headline inflation averaged 3.4%, which is also the central bank’s full-year forecast.

The DBCC expects inflation to settle at 3-4% by end-2024 and return to the 2-4% target range from 2025 to 2028.

The slowing inflation print also gives the Bangko Sentral ng Pilipinas “more room to be aggressive” in its policy easing cycle to help the economy grow at a faster rate, Finance Secretary Ralph G. Recto said last week, citing September inflation data.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board can deliver a 25-basis-point cut at its Oct. 16 meeting, followed by another cut at its Dec. 19 meeting.

Ms. Pangandaman also said she expects better state spending to drive economic growth.

“On the part of the DBM (Department of Budget and Management) and the National Government agencies, we are looking at their expenses and (budget) utilization,” she said in mixed English and Filipino.

“Hopefully the agencies were able to unload all their budgets, procure by this time, and are in their implementation stages. So, I hope that contributes to our growth.”

The latest data from the Budget department showed that state agencies posted a cash utilization rate of 95%, using PHP 2.96 trillion of the PHP 3.12-trillion worth of notices of cash allocation released as of end-August. — B.M.D.Cruz

The latest September inflation print and improving outlook will give the Bangko Sentral ng Pilipinas (BSP) more than enough room to cut benchmark rates further, analysts said.

“With an even better inflation outlook on the horizon, the risk of the BSP cutting its policy rate again twice this year is largely increasing,” HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said in a report.

The consumer price index (CPI) sharply slowed to 1.9% in September from 3.3% in August. September marked the first time in over four years that inflation was below 2%.

“In terms of monetary policy, the decline in headline inflation reinforces our view that BSP will continue to cut rates this year after kicking off its easing cycle early,” Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani said in a commentary.

The BSP in a statement on Friday said the September print affirms its outlook that inflation will continue its downward trend in the succeeding quarter.

The Bank of the Philippine Islands (BPI) in a commentary said that inflation may have reached its lowest this year and could potentially rebound in the fourth quarter amid fading base effects.

“Nevertheless, we expect inflation to remain under control, potentially staying below 3% in the absence of supply shocks. This favorable condition could extend into 2025,” BPI said.

‘BATTLE IS FINALLY OVER’

In the first nine months, headline inflation averaged 3.4%, which is also the central bank’s full-year forecast for 2024.

“Last time inflation was this low, the Philippines was in lockdown due to the COVID-19 (coronavirus disease 2019) pandemic. It almost feels too good to be true as the Philippine economy went through an inflation surge that lasted for almost two years,” Mr. Dacanay said.

“But we think the September CPI marks the day that the BSP’s inflation battle is finally over — all because of a mix of both hard work and luck.”

Mr. Dacanay attributed this to both monetary and non-monetary measures over the past year, such as the BSP’s aggressive tightening cycle from May 2022 to October 2023 and lowering of trade barriers for key commodities.

Moving forward, he said inflation would ease further after India lifted trade restrictions on non-basmati white rice.

“This comes at an opportune time for the Philippines since retail rice prices haven’t decreased yet, even with the tariff rate cut in July. A better outlook for the global supply of the grain should help grease things up for retail rice prices to finally slide,” Mr. Dacanay added.

In September, rice inflation sharply slowed to 5.7% from 14.7% in August and 17.9% last year partly due to low base effects. This also marked the lowest rice inflation since the 4.2% print in July 2023.

Meanwhile, Nomura expects inflation to settle at 3.1% this year and 2.3% in 2025.

“Our forecast pencils in CPI inflation at around 1.9% by fourth quarter 2024, slightly below the BSP’s 2-4% target,” it said.

“We still assume the impact of the rice tariff cuts will become evident from October, but this could be partly mitigated by a likely snap back of those food items that provided the biggest drag in September,” it added.

On the other hand, BPI noted risks to this inflation outlook, citing the impact of La Niña and African Swine Fever (ASF).

“Inflation in the Philippines remains sensitive to climate conditions, and another extreme weather event could trigger a spike. On the other hand, stable commodity prices amid China’s economic slowdown may offset these risks. We now expect full-year inflation to settle at 3.2% in 2024 and 2.8% in 2025,” it added.

The “favorable” outlook on inflation gives the central bank the flexibility to continue its policy easing path, BPI said.

“We anticipate two more policy rate cuts in 2024, with more cuts likely in 2025, potentially bringing the policy rate down to 4.5% to 5% by the end of 2025,” it said.

BSP Governor Eli M. Remolona, Jr. last week said the Monetary Board can deliver a 25-basis-point (bp) cut at its Oct. 16 meeting, followed by another at its Dec. 19 meeting.

The central bank chief has said that they are seeking to slash the key rate to as low as 4.5% by end-2025 in order to support the economy.

“But with inflation risks largely dissipating, largely due to rice, the room to cut policy rates in both the October and December rate-setting meetings is vastly increasing,” Mr. Dacanay said.

Nomura likewise expects the BSP to cut by 25 bps each at the last two meetings of the year.

“Beyond that, we also expect BSP to cut in the first three meetings of 2025 before pausing. This would bring the RRP rate to 5% by May 2025 (i.e., a total of 150-bp cuts in this cycle).”

However, analysts noted that the BSP is unlikely to be aggressive in its policy reductions.

“There are several uncertainties right now in the current environment, with inflation risks tied to supply constraints both locally and globally, heightened by geopolitical risks. As such, we don’t expect interest rates to return to the low levels seen in the past decade,” BPI said.

“The Fed’s rate cuts also support further easing by BSP, but we still think BSP is unlikely to be more aggressive with 50 bp clips, like the Fed was last month,” Nomura said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., also noted the possibility of delayed easing by the BSP.

“We think that BSP will not rescind its commitment to further easing. However, it may be delayed amidst a massive escalation of Middle East tensions that may bring global prices higher, unhinging inflation expectations in the short to medium term,” he said in a Viber message.

RRR CUTS

BPI Lead Economist Emilio S. Neri, Jr. said that the central bank’s latest decision to slash banks’ reserve requirement ratio (RRR) will also support the BSP delivering 25-bp-sized cuts.

“It’s possible that BSP’s substantial RRR cut sufficiently complements a measured approach in reducing the RRP 25 bps at a time so there may be no need to do a jumbo RRP reduction either in October or December,” he said in a Viber message.

The BSP last month announced that it would reduce the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5% effective on Oct. 25.

It will also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders will be reduced by 100 bps to 1%. Rural and cooperative banks’ RRR will likewise go down by 100 bps to 0%.

Mr. Remolona earlier said that the RRR could be brought down to as low as zero before his term ends in 2029.

“In addition to potential rate cuts, the inflation outlook may also allow the BSP to reduce the RRR further,” BPI said.

BPI said that a 1% cut in the RRR will free up P150 billion in deposits. “The recent 250-bp reduction is expected to release PHP 375 billion in deposits. As a result, we expect intermediation costs to decline, which could drive down lending rates. This could also lead to improvements in the capital markets and banking system as banks will be able to allocate their resources more efficiently,” it added.

Further RRR cuts are also unlikely to stoke inflation, BPI said.

“The BSP has robust liquidity management tools in place to absorb any excess funds released into the system. These tools have been effectively utilized over the years, ensuring that liquidity levels remain within the BSP’s control,” it said. — Luisa Maria Jacinta C. Jocson

With the Philippines’ fiscal consolidation slowing this year, the International Monetary Fund (IMF) said the country still has room to introduce new tax measures.

“On the fiscal policy side, we see fiscal consolidation proceeding in 2024, although it will be more moderate than envisioned in earlier projections,” IMF Mission Chief Elif Arbatli Saxegaard said at a press briefing on Wednesday.

“In terms of spending, we actually see more spending on the public side. We see that being offset or financed by higher revenues,” she added.

The IMF projects the fiscal deficit to settle at 5.6% of gross domestic product (GDP) this year and in 2025. However, it noted that its deficit definition is different from the National Government’s (NG) as it uses a different standard in capturing the deficit.

“Based on our definition of the deficit, we expect the deficit to go from 6.1% in 2023 to 5.6% this year and to remain at 5.6% in 2025,” she said.

The NG set its budget deficit ceiling at 5.6% of GDP this year, equivalent to PHP 1.48 trillion. Next year, the deficit is projected to settle at 5.3% or PHP 1.54 trillion.

The IMF noted that there is room for additional tax measures that will create more fiscal space.

“Over the medium term, the fiscal consolidation plans remain appropriate and should be supported by a sustainable plan to raise tax revenues and implement expenditure reforms,” Ms. Saxegaard said.

The Philippine government can look into excise taxes as an option to generate revenues “sufficiently and quickly,” she said.

Last year, then-Finance Secretary Benjamin E. Diokno pushed for an excise tax on “junk food” and higher taxes on sweetened beverages. These taxes were projected to generate up to P76 billion in the first year of implementation.

However, the Department of Finance (DoF) earlier this year said there are no plans to introduce new tax measures apart from the ones already pending in Congress.

“In terms of other areas over the medium term, there could be a lot of different options that could be considered. One area is improving the efficiency of the value-added tax (VAT) system,” Ms. Saxegaard said.

Last year, the DoF said that the Philippines has one of the lowest VAT efficiencies in Southeast Asia despite having the region’s highest VAT rate at 12%.

From 2016 to 2020, the country collected an average of PHP 723 billion from VAT, which is only around 40% of the expected VAT collection.

Ms. Saxegaard also noted the possibility of pursuing a carbon tax.

“We understand that there’s also different tradeoffs playing out here. The cost of power and electricity in the Philippines is quite high,” she said.

The Finance department has been studying various carbon pricing options for the country, including a carbon tax and emissions trading system (ETS). This as it seeks to encourage businesses to shift to sustainable practices.

The Philippines currently does not have any explicit form of carbon pricing.

“As a growing economy, the Philippines has to weigh different considerations in thinking about a carbon tax. It is one option for their consideration that can support the transition to a green economy to promote renewable energy, to shift consumption patterns away from polluting energy to more green energy sources,” Ms. Saxegaard said.

“In that respect, it could stay on the table. But it’s a complicated issue, so it needs to be considered very carefully.”

Meanwhile, IMF Representative to the Philippines Ragnar Gudmundsson said that the government should also pay close attention to granting tax incentives.

“What we would also recommend is continuing to monitor closely tax incentives as they’re being granted and ensuring that they contribute effectively to additional investments and momentum for growth.”

“There also may be a sense of provisions to these incentives so that eventually, once those investments have come to the Philippines and contributed to growth and that they’re sustainable over time, there will also be a contribution through, for instance, income tax over time.”

‘NEUTRAL’

For next year, the IMF said that the fiscal stance will be “neutral.”

“That means that the impulse from the fiscal policy is neither contractionary nor too expansionary,” Ms. Saxegaard said.

Financial conditions are also seen to improve as both the Bangko Sentral ng Pilipinas (BSP) and US Federal Reserve are expected to continue easing.

BSP Governor Eli M. Remolona, Jr. has said that the central bank can cut rates further in the fourth quarter, possibly by up to 50 bps. The Monetary Board’s remaining meetings are on Oct. 16 and Dec. 19.

“All of these financial sector developments, including the reserve requirement cut as well, can support the more favorable financial conditions. That will support a pickup in investment, private investment, and also some pickup in private consumption next year, allowing the fiscal side to be sort of more neutral,” Ms. Saxegaard said.

The BSP will slash the reserve requirement ratios (RRR) of big banks by 250 bps to 7% from 9.5% later this month.

SLOW FISCAL RECOVERY

In a separate report, Fitch Solutions’ unit BMI said that the Philippines’ recovery in its fiscal position will be more gradual.

It said that the proposed PHP 6.352-trillion national budget marks an increase in public spending, which will derail consolidation efforts.

“This will reverse the country’s fiscal consolidation efforts. Admittedly, the Philippines fiscal recovery has already fallen behind regional counterparts and the latest budget certainly does not help this cause,” it said.

BMI said the government will “fall short” of its fiscal targets, projecting the budget gap to hit 5.9% of GDP this year.

The NG will also struggle to bring down debt levels, BMI said.

“While the authorities aim to reduce public debt as a proportion of GDP to 55.9% by 2028, we believe that this is unlikely to be met. To achieve this, the deficit must be maintained at 3.6% of GDP over the subsequent three years (2026-2028),” it said.

“But this would necessitate spending cuts of almost 1.0 percentage points, based on our estimates, making it challenging for the current administration to balance its economic agenda.”

Latest Treasury data showed that the NG’s outstanding debt dipped to PHP 15.55 trillion as of end-August.

In the first half, the debt-to-GDP ratio stood at 60.9%. The government expects the debt ratio to end at 60.6% of GDP this year.

“Instead, we forecast the budget shortfall to average 4.6% over the same period. Consequently, public debt will recede more slowly, eventually reaching 58.8% of GDP in 2028.”

On the other hand, BMI noted that the government could surpass its revenue targets.

“Revenue targets are relatively watered down in comparison. The government is forecasting revenue collection to dip from 16.1% of GDP in 2024 to 15.8% in 2025. In our view, this is a tad too conservative especially when the macroeconomic backdrop is set to improve next year.”

In the eight-month period, revenue collections jumped 15.91% to PHP 2.99 trillion from PHP 2.58 trillion last year.

“Philippine policy makers tend to underestimate their revenue targets, as seen in the past two years. Currently, we have projected revenue collection to be around 16% of GDP, which is already higher than the government’s expectation of 15.8%. If revenue exceeds even our projections, we could anticipate a smaller budget deficit.” – Luisa Maria Jacinta C. Jocson, Reporter

The Philippines will likely post the second-fastest growth in the Association of Southeast Asian Nations Plus 3 (ASEAN+3) region this year and in 2025, driven by faster government spending and easing interest rates, according to a regional think tank.

In its October update, the ASEAN+3 Macroeconomic Research Office (AMRO) retained its gross domestic product (GDP) growth forecast for the Philippines at 6.1% this year and 6.3% next year.

“We didn’t change the forecast for the Philippines. As you can see, we expect growth to be at 6.1%, which will be an improvement from last year’s 5.6%,” AMRO Chief Economist Hoe Ee Khor told a virtual briefing on Thursday.

“This is mainly because we expect government investment spending to be higher this year, together with services exports,” he said.

The AMRO’s projection is within the government’s 6-7% target for 2024. However, its 2025 forecast is below the government’s 6.5-7.5% goal.

Mr. Khor said Philippine economic growth remains one of the strongest in the ASEAN+3 region, which includes members of the ASEAN, China, Hong Kong, Japan, and South Korea.

AMRO’s growth forecast for the Philippines is just behind Vietnam (6.2%), and ahead of Cambodia (5.6%), Indonesia (5.1%), China (5%), Malaysia (4.7%), Laos (4.5%), Brunei Darussalam (4%), Hong Kong (3.3%), Thailand (2.8%), South Korea (2.5%), Singapore (2.4%), Myanmar (1.8%) and Japan (0.5%).

Philippine growth is also projected to be above the projected ASEAN+3 average of 4.2% this year. This was slightly lower than the previous forecast of 4.4%.

“Growth for the region will be driven by continued recovery in external trade, resilient domestic demand, and a boost in tourism due to relaxed visa policies in some economies,” AMRO said.

For 2025, the ASEAN+3 region’s growth forecast was upgraded to 4.4% from 4.3% previously, in line with expectations of steady global growth.

“The region is on track to achieve steady growth this year and the next and this will be underpinned by resilient domestic demand and the ongoing recovery in exports,” AMRO Principal Economist Allen Ng told the briefing.

The global demand for artificial intelligence will drive ASEAN+3 exports, AMRO said.

“Leading indicators also suggest sustained demand for a wide range of manufactured goods beyond semiconductors, indicating a broad-based export recovery in the region,” according to the report.

Cost pressures have also eased as global freight rates stabilized, which would help boost regional trade, it added.

For ASEAN, AMRO lowered its growth forecast to 4.7% this year from 4.8% previously. However, it raised its 2025 projection to 4.9% from 4.8% previously.

“Household consumption in most ASEAN economies has remained robust, supported by favorable employment conditions and moderating inflation,” Mr. Ng said.

INFLATION

Meanwhile, AMRO kept its inflation forecast for the Philippines at 3.3% in 2024 and 3.1% in 2025 amid expectations of continued policy easing.

“I think that if it (inflation) continues to trend down, it will provide room for the BSP (Bangko Sentral ng Pilipinas) to cut rates further,” Mr. Khor said.

The central bank began its easing cycle in August by cutting the benchmark rate by 25 bps to 6.25% from the over 17-year high of 6.5%. This was the first time the BSP reduced rates in nearly four years.

AMRO lowered its ASEAN+3 inflation forecast, which excludes Laos and Myanmar, to 1.9% this year from 2.1% previously.

“The moderation in inflation in 2024 reflects the continuing impact of tight monetary policy, softer food prices, and lower imported inflation,” AMRO said.

AMRO kept its inflation forecast for ASEAN+3 (excluding Laos and Myanmar) at 2.3% in 2025.

“Overall, inflationary pressure remains well contained in the region, in line with the baseline expectation of normalization of global inflationary trend,” the think tank added.

For ASEAN, the inflation forecast was cut to 6.1% from 6.3% previously, while its 2025 projection was raised to 4.9% from 4.4% in July.

RISKS

AMRO identified several key risks that could affect the baseline growth forecasts for this year and next year, such as a sharp growth slowdown in the US, Europe, and China and a rise in financial market volatility.

“Looking ahead, uncertainties surrounding US monetary policy trajectories, the upcoming presidential election, and the potential for further unwinding of large financial positions could affect market functioning and amplify financial stresses. This could trigger further disorderly market conditions, impacting the region’s macro-financial stability,” it said.

A spike in global commodity and shipping prices due to weather disturbances and geopolitical conflicts could also hurt the region’s export recovery and stoke inflation, AMRO noted.

“The potential escalation of protectionist policies following the US presidential election is another key risk for the region,” Mr. Khor said.

Former US President Donald Trump, who is known for his populist and protectionist policies, is set to face Vice-President Kamala Harris in the presidential election on Nov. 5.

“Based on AMRO staff estimates, a severe escalation of protectionist measures by the US, such as the implementation of universal tariffs on imports, could lower the region’s growth by almost one percentage point — resulting in the lowest regional growth since the Asian Financial Crisis, with the exception of the pandemic years of 2020 and 2022,” the think tank said.

In the long term, the ASEAN+3 region faces significant challenges arising from aging populations and failure to address climate change.

“The broader trend of geoeconomic fragmentation and continued geopolitical tensions will likely negatively affect the longer-term growth of the region, especially for the trade-dependent economies,” AMRO said.

Mr. Khor said the easing cycle of global central banks, as well as China’s measures to boost its economy, will have favorable spillover effects in the region.

“However, rising external and geopolitical uncertainties underscore the need to continue strengthening resilience and enhancing cooperation in the region,” he added. — B.M.D.Cruz