Archives: Business World Article

The Philippines’ dollar reserves rose to USD 106.65 billion as of end-February, according to the Bangko Sentral ng Pilipinas (BSP).   

Preliminary data from the central bank showed gross international reserves (GIR) rose by 3.3% month on month from USD 103.27 billion as of end-January.

This was also 4.6% higher than USD 101.99 billion in the same period a year ago.

The dollar reserves were also the highest in three months or since the USD 108.49 billion posted in November.

Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.

“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 its issuance of Republic of the Philippines global bonds,” the central bank said.

In January, the NG raised USD 3.3 billion from the sale of 10-year and 25-year fixed-rate global bonds and seven-year euro sustainability bonds. It was NG’s first global bond offering for the year.

BSP data showed the level of dollar reserves as of end-February is enough to cover about 3.8 times the country’s short-term external debt based on residual maturity.

It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

The rise in dollar reserves was also due to the “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 value of the central bank’s gold holdings went up by 2.5% to USD 12.5 billion at end-February from USD 11.75 billion a month ago. It likewise jumped by 16.6% from USD 10.34 billion in the same period in 2024.

Foreign investments stood at USD 89.41 billion as of end-February, up by 3.5% from USD 86.37 billion as of end-January and by 3.4% from USD 86.45 billion a year prior.

Meanwhile, net international reserves increased by 3.3% to USD 106.6 billion from USD 103.2 billion as of end-January.

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

The BSP’s reserve assets also include foreign investments, foreign exchange, reserve position in the IMF and special drawing rights (SDR).

Reserves with the IMF dipped by 0.2% to USD 670.2 million as of end-February from USD 671.3 million a month earlier. It also declined by 10.9% from USD 752.5 million in the year-ago period.

SDRs — or the amount which the Philippines can tap from the IMF’s reserve currency basket — edged higher by 0.2% to USD 3.74 billion from USD 3.73 billion in the previous month. Year on year, it dropped by 1.1% to USD 3.78 billion.

“The increase in GIR reflects strong external buffers, which are crucial for shielding the economy against external shocks,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the rise in GIR was due to the NG’s latest global bond issuance and continued gains in gold holdings.

“Gold holdings continued to improve, largely reflecting and consistent with the 2.1% monthly gain in world gold prices, which again posted new record highs recently partly due to some flight to safe havens such as gold amid the recent global market volatility,” he said.

Mr. Ricafort also noted the increase in foreign investments amid gains in the prices of US Treasuries in February.

“The benchmark 10-year US Treasury yield already eased to 4.3%, among the lowest in three months,” he added.

For the coming months, Mr. Ricafort said the GIR could be supported by the continued growth in overseas Filipino worker (OFW) remittances, business process outsourcing (BPO) revenues, exports and the quicker recovery in foreign tourism revenue.

“OFW remittances are also expected to remain resilient, helping bolster reserves. BPO and tourism can generate foreign exchange inflows that can strengthen GIR,” Mr. Rivera added.

Oikonomia Advisory and Research, Inc. economist Reinielle Matt M. Erece likewise said the GIR will be driven by “strong OFW remittances, foreign investments, a weak peso, and trade diversion.”

The BSP is expecting a GIR level of USD 110 billion for this year.

Mr. Rivera said the central bank’s forecast for dollar reserves this year is attainable, though this would depend on the BSP’s intervention in the FX market.

“A depreciating peso could lead to higher import costs, increasing demand for the US dollar which may put pressure on reserves. However, a weaker peso also benefits dollar-earning sectors, which could offset some of the risks,” Mr. Rivera said.

“A higher import bill due to infrastructure projects and rising oil prices could widen the deficit, requiring the BSP to use reserves to stabilize the peso,” he added.

The peso closed at P57.206 per dollar on Friday, strengthening by 11.4 centavos from its P57.32 finish on Thursday. This was the peso’s best finish in nearly five months or since its P57.205-a-dollar close on Oct. 11, 2024.

“A weak peso is not necessarily disadvantageous, as it makes exports more competitive in international markets. Higher exports mean more dollar inflows,” Mr. Erece said.

“Add to that the ongoing trade conflict among large producers, which can be an opportunity for the Philippines to be an alternative trading partner for other countries.” – Luisa Maria Jacinta C. Jocson, Reporter

The Bangko ng Pilipinas (BSP) is expected to resume its rate-cutting cycle as early as April following slower-than-expected inflation in February, analysts said.

In a report, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the “door is now wide open for the BSP to resume easing in April.”

“Given the low inflation environment, we see a possible policy rate cut at the next Monetary Board meeting in April,” Metropolitan Bank & Trust Co. (Metrobank) Research said.

Headline inflation sharply eased to 2.1% in February from 2.9% in January and 3.4% a year ago. This also marked the slowest inflation print in five months.

This brought average inflation to 2.5% in the first two months, well within the central bank’s 2-4% target.

Pantheon expects inflation to settle at 2.7% this year as risks to the inflation outlook are tilted to the downside.

Nomura Global Markets Research analysts Euben Paracuelles and Nabila Amani likewise expect inflation to average 2.7% this year.

On the other hand, Metrobank’s full-year inflation forecast is at 3.1% “barring major supply-side shocks.”

The central bank said the risks to the inflation outlook have become “broadly balanced” for this year and the next. The BSP expects inflation to average 3.5% this year.

Analysts said the within-target inflation outlook will allow the BSP to continue easing.

Mr. Chanco said their baseline view calls for a rate cut at the Monetary Board’s April 3 meeting.

“Moreover, we’re keeping to our view that the BSP will cut by a total of 100 basis points (bps) by yearend to 4.75%, one more 25-bp cut than the consensus currently expects,” he added.

Nomura expects a total of 75 bps worth of cuts this year through the Monetary Board’s meetings in April, August and December.

“BSP still assesses the pass-through from weakening FX (foreign exchange) as limited and has ample FX reserves to intervene and stem currency volatility, and we think it will maintain a laissez-faire approach to FX policy,” it added.

Despite keeping the benchmark rate steady at 5.75% at its February policy review, BSP Governor Eli M. Remolona, Jr. has said they are still in easing mode.

He signaled the possibility of up to 50 bps worth of rate reductions this year.

The central bank slashed borrowing costs by a total of 75 bps last year through increments of 25 bps at its last three meetings of the year.

GlobalSource Partners country analyst Diwa Guinigundo said the lower February inflation will have a “material bearing on both the (BSP’s) baseline and risk-adjusted inflation forecasts for 2025 and 2026 unless a big surprise counterweights that favorable factor.”

“Anchored on this, and assuming that the balance of risks starts to twist towards the midpoint, or the downside, the BSP may be expected to resume easing its monetary policy stance.”

However, Mr. Guinigundo said “some precaution is critical.”

“We cannot dismiss the brewing price pressures in the US as a result of the Trumpian higher tariff (more expensive imports), tax cuts (more spending) and strict immigration policies (higher labor costs). They are all potentially inflationary.”

Reuters reported another reprieve of levies aimed at Mexico and Canada announced by President Donald J. Trump on Thursday offered little relief to whiplashed markets.

The exemption expires on April 2 when Mr. Trump said he will impose reciprocal tariffs on all US trading partners.

“The US Fed would then be more careful in its easing stance such that if the BSP exercises its flexibility to ease monetary policy at least twice during the year, any reduction in interest rate differential with the US could trigger capital flows and weakness in the peso,” Mr. Guinigundo said.

Fed Chair Jerome H. Powell said on Friday the US central bank will be in no rush to cut rates while it waits for more clarity on how policies of the new Trump administration affect the economy.

Mr. Guinigundo said US inflation could “act up again” as global oil markets may be disturbed.

“Indeed no one wins in a trade war, and higher though elusive inflation could be a silent proof,” he added. — Luisa Maria Jacinta C. Jocson

The Philippines can boost its revenue collections by expanding its value-added tax (VAT) base and improving tax administration, the World Bank said.

In an e-mail interview with BusinessWorld, World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said the Philippine government has “substantial space to increase VAT revenues by improving compliance and reducing exemptions and special rates.”

“The government could generate significant reforms by improving tax administration and taking steps to broaden the VAT base, through amendments in tax policy,” Mr. Mustafaoğlu said on Feb. 18.

VAT, an indirect tax that can be passed on to buyers, is a form of sales tax imposed on sale, barter, exchange, or lease of goods or properties and services.

Mr. Mustafaoğlu said the country should also address tax policy gaps and opportunities to improve tax administration.

Sought for comment, Department of Finance (DoF) Secretary Ralph G. Recto told BusinessWorld: “We are looking for ways to expand VAT base and that includes VAT on digital services among others.”

President Ferdinand R. Marcos, Jr. last October signed Republic Act No. 12023, which imposes a 12% VAT on digital services providers (DSPs), both resident and nonresident.

About PHP 7.25 billion is expected to be collected from this law this year, and another PHP 21.37 billion in 2026, and PHP 26.27 billion in 2029, the DoF said.

“Yes, we’re improving tax administration. Tax administration also includes our digitalization program. I don’t agree with the International Monetary Fund to VAT senior citizens. It is not in our value system,” Mr. Recto said.

In a 2022 report, the IMF had suggested the Philippine government increase VAT revenue by removing exemptions and zero-ratings, including those for senior citizens, who are entitled to a 12% VAT exemption granted by the Expanded Senior Citizens Act.

Meanwhile, Minimal Government Thinkers (Manila) President Bienvenido S. Oplas, Jr. said that while he agrees with the World Bank that the Philippines should broaden the tax base, he believes that the VAT rate should be reduced instead.

“But for me, broaden the VAT base by reducing the rate from 12% with plenty of exempted sectors to 7-8% with zero exempted sector except raw agriculture and fishery products,” Mr. Oplas said.

The Philippines’ 12% VAT rate is relatively higher compared with Southeast and East Asian countries, he said.

China imposes 13% VAT for general goods sales and imports, this was followed by Indonesia, which is at 12%, and Cambodia, Malaysia, Vietnam (standard rate), and Laos at 10%. Singapore’s VAT is at 9%, while Thailand has a 7% rate.

Myanmar has no VAT but imposes a commercial tax ranging from 0-15% as a turnover tax on goods and services.

Other countries such as South Korea levy a 10% VAT on goods and services, while Japan’s VAT is at 10%. Hong Kong does not have VAT, goods and services tax or sales tax.

Eleanor L. Roque, tax principal of P&A Grant Thornton, said almost all the transactions are already subject to VAT, and increasing taxes affects the most vulnerable.

“Other exempt transactions like sale of certain food items are exempted because increasing their cost due to VAT is detrimental to our vulnerable population,” she told BusinessWorld via an e-mailed statement.

Ms. Roque suggested that regulators should focus on improving taxpayer compliance and simplifying tax rules.

She also argued that the Philippines is not “lesser taxed” compared with its Association of Southeast Asian Nations neighbors.

Meanwhile, Jose Enrique “Sonny” A. Africa, executive director at think tank IBON Foundation, said expanding the VAT base would distort consumption patterns of the low-income households.

“Especially in the context of the Philippines with such wide gaps in income and wealth, the design of the tax system should be rigorously guided by equity considerations and not just by revenue collection,” he said.

He noted that the government’s reliance on VAT has significantly increased as it accounts for 18.9% of BIR revenues in 2023 from 7.9% in 1989.

Mr. Africa said the government should instead impose higher tax rates on luxury goods like luxury cars, jewelry, designer goods and other high-end products in the “inherently regressive VAT system.”

However, he noted the government should grant VAT exemptions for food and agricultural products, educational services, healthcare, specific goods for seniors and persons with disability, and reading materials. – Aubrey Rose A. Inosante, Reporter

The Philippines’ unemployment rate in January rose to its highest level in six months, as hiring declined after the holiday season, the statistics agency said on Thursday.

Preliminary data from the Philippine Statistics Authority’s (PSA) Labor Force Survey showed the jobless rate at 4.3% in January, slightly lower than 4.5% a year ago but higher than  3.1% in December.

This translated to 2.16 million jobless Filipinos in the first month of the year, unchanged from January 2024 but higher than the 1.63 million seen in December 2024.

January saw the highest unemployment rate since 4.7% in July 2024.

At a news briefing, PSA Assistant Secretary Divina Gracia L. Del Prado said higher unemployment is always seen in January.

“If you look at the series, it always happens — employment shoots up in December, and then suddenly in January, it drops because there’s no longer a demand,” she said in mixed English and Filipino.

Bicol Region recorded the highest unemployment rate with 6.5%, while Zamboanga Peninsula had the lowest with 2.3%.

“While we welcome this development, we also acknowledge that these additional jobs are classified as vulnerable. Therefore, our strategy remains clear: to sustain job creation by fostering a dynamic and investment-friendly economy while preparing our workforce for high-growth and emerging industries that offer high-quality, well-paying jobs,” National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said in a statement.

Meanwhile, underemployment slipped to 13.3% in January, equivalent to 6.47 million from 13.7% in the same month a year ago.

However, January underemployment — the proportion of those already working, but still looking for more work or longer working hours — rose from 10.9% in December.

It was also the highest in nine months or since April 2024 when it hit 14.6%.

“The industry with the largest share of underemployment is agriculture and forestry. Agriculture accounts for 44.5% of total underemployment. Nearly half of those employed in the sector consider themselves underemployed,” Ms. Del Prado said in Filipino.

Soccsksargen (South Cotabato, Cotabato, Sultan Kudarat, and Sarangani) had the highest underemployment rate at 29.5%, while the Davao Region was the lowest at 3.3%.

PSA data showed the size of the labor force stood at approximately 50.65 million Filipinos aged at least 15 years old, yielding a labor force participation rate (LFPR) of 63.9%. This was higher than the 61.1% in January 2024, equivalent to a labor force of 48.06 million.

The LFPR is the percentage of the population that is economically active.

“This suggests robust employment growth compared to last year… due [to] more money circulating in the economy as a result of election spending by candidates and the flood of aid,” University of the Philippines Diliman School of Labor and Industrial Relations Assistant Professor Benjamin B. Velasco told BusinessWorld in a Facebook Messenger chat.

The youth LFPR rose to 31.8% in January from 29.7% in January 2024.

Finance Secretary Ralph G. Recto is optimistic that youth participation in the labor force will continue to increase amid government efforts to “harness the country’s demographic sweet spot.”

“We have a multifaceted strategy to sustain our dynamic labor market, focusing on education and workforce development, infrastructure, and investments. We are investing heavily in both intellectual and physical infrastructure,” Mr. Recto said in a statement.

PSA data also showed the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) recorded the highest LFPR with 72.5%, while the Bicol Region recorded the lowest with 59.1%.

CONCERNS
Federation of Free Workers (FFW) President Jose Sonny G. Matula said the latest jobs data raises serious concerns.

“Unemployment, underemployment, and precarious work arrangements continue to rise, underscoring the urgent need for economic reforms that will provide stable, high-paying jobs while ensuring that businesses can sustain growth,” he told BusinessWorld in a Viber chat.

PSA data showed the employment rate, which is the proportion of the employed to the total labor force, stood at 95.7% in January. This was a tad higher than the employment rate of 95.5% in the same month in 2024.

About 48.49 million Filipinos had jobs in January, higher than 45.9 million in the same month last year but lower than 50.19 million in December 2024.

Zamboanga Peninsula had a 97.7% employment rate, the highest in the country, while Bicol Region had the lowest at 93.5%.

The services sector remains the largest employer, accounting for 61.6% of jobs, followed by agriculture and forestry (21.1%) and industry (17.2%).

Most jobs in the services sector are contractual, seasonal, or precarious, Mr. Matula noted.

“Many workers are trapped in labor-only contracting schemes, job orders (JOs) or contracts of service (COS) without security of tenure, and short-term employment cycles that offer no long-term stability,” he said.

Bukluran ng Manggagawang Pilipino President Renecio S. Espiritu, Jr. said the higher underemployment rate shows Filipinos are struggling with insufficient wages or jobs that do not match their background.

“Workers in critical sectors like manufacturing continue to decline due to rampant contractualization and union-busting,” Mr. Espiritu said in Filipino.

He also pointed out the “very low” LFPR for women at 52.9%.

“This means we are either wasting a significant portion of our labor power or failing to recognize the reproductive work that women perform — both of which are simply unacceptable,” Mr. Espiritu said.

Meanwhile, agriculture and forestry had the biggest annual increase in jobs in January, adding 883,000 jobs. This was followed by wholesale and retail trade, repair of motor vehicles and motorcycles (850,000); accommodation and food service activities (533,000); and transportation and storage (141,000).

On the other hand, manufacturing shed 209,000 jobs in January, the highest among subsectors. The professional, scientific and technical activities sector cut 58,000 jobs, followed by arts, entertainment and recreation (29,000), and construction (11,000).

Wage and salary workers accounted for 63% of the workforce in January, followed by self-employed individuals without paid employees (28.2%), and unpaid family workers (6.6%). The smallest share belonged to employers in family-operated farms or businesses at 2.2%.

Working hours averaged 40.4 hours per week in January, lower than the average of 42.2 hours a year ago. – Chloe Mari A. Hufana, Reporter

The Bureau of Customs (BoC) is confident it can meet its P1.06-trillion collection goal this year, despite lower tariffs on rice, electric vehicles (EV) and other commodities.

BoC Assistant Commissioner Vincent Philip C. Maronilla told BusinessWorld that the agency will focus on other potential nontraditional revenues to offset the tariff cuts.

This year, the BoC is targeting to collect PHP 1.06 trillion, 14.28% higher than the actual collection of PHP 931.05 billion in 2024.

“It will be a bonus if we exceed the target, so maybe it will be a little higher. It will be at the border of PHP 1.06 trillion,” he said.

He said the BoC has already factored in the lower tariffs from rice, pork and EVs in this year’s collection target.

“Because last year, those collections from those items (rice, pork, EVs) which are some of our main drivers were part of our projected revenue forecasts,” Mr. Maronilla said.

Last year, the BoC missed its full-year target by 0.92%.

Customs collections took a hit after Executive Order No. 62 took effect in July 2024. The order cut import tariffs on rice to 15% until 2028 to tame inflation. It also extended the effectivity of lower rates on pork, corn and mechanically deboned meat for poultry. The same order also extended the zero-tariff policy on electric vehicles and parts through 2028, as well as expanded the coverage to other types of e-vehicles.

“We’ve focused on some other potential nontraditional revenue to offset that (revenue loss from tariff cuts,” Mr. Maronilla said.

The BoC is focusing on plugging revenue leakages, he added.

“Number one, to plug the loopholes and number two, maybe recover some leakages in the revenue that happened during the previous times,” he said.

He noted the BoC is looking at encouraging violators to avail themselves of “certain programs that we have with a little penalty on the side.”

“And of course, we’re looking into updating and beefing up our reference values as a risk management tool to plug revenue leakages in terms of undervaluation or misinvoicing,” Mr. Maronilla said.

Meanwhile, the BoC said preliminary revenue collection reached PHP 79.34 billion in January, exceeding its PHP 78.015 billion target by 1.7%.

Year on year, the January figure was 8.1% or PHP 5.947 billion higher than the PHP 73.397 billion collected in January 2024.

“Our priority is to sustain revenue growth while ensuring seamless trade and robust border protection,” Customs Commissioner Bienvenido Y. Rubio said in a statement on Thursday.

Mr. Maronilla said the agency expects the volume of imports to increase ahead of the midterm elections.

“(There are) projections that volume this year might still come up and spending on importation might be up also because of some activities related to the elections,” he said. – Aubrey Rose A. Inosante, Reporter