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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 USD 44.07 billion from a year ago. Exports declined by 7.8% to USD 60.91 billion, while imports fell by 9.6% to USD 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. — By Luisa Maria Jacinta C. Jocson, Reporter

The extension of reduced tariffs on rice and other key agricultural commodities will help cushion the inflationary impact of the El Niño weather phenomenon, analysts said.

“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

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. — By Keisha B. Ta-asan, Reporter

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 USD 10.846 billion from USD 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 USD 5.861 billion in the January-to-September period from USD 2.78 billion during the same period in 2022.   

Interest payments surged by 159.7% to USD 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 USD 118.833 billion at end-September from USD 107.91 billion in the same period a year ago. It also inched up by 0.8% from USD 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. — Keisha B. Ta-asan, Reporter