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The Philippine financial system’s total resources continued to rise at end-September, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP).

Resources of banks and nonbank financial institutions grew by 7.9% to PHP 29.855 trillion in the first nine months of the year from PHP 27.647 trillion in the same period in 2022.

Banks and nonbank financial firms hold resources that include funds and assets such as deposits, capital, and bonds or debt securities.

BSP data showed banking resources rose by 8.7% to PHP 24.705 trillion at end-September from PHp 22.722 trillion a year prior. Banks include universal and commercial banks, thrift banks, as well as rural and cooperative banks.

Broken down, total resources held by universal and commercial banks stood at PHP 23.228 trillion as of September, up by 8.8% from PHP 21.356 trillion a year ago.

Thrift banks held PHP 1.068 trillion of total resources, increasing by 9.5% from PHP 975 billion a year ago, while the resources of rural and cooperative banks climbed by 4.6% to PHP 408 billion year on year.

Meanwhile, the resources of nonbank financial institutions went up by 4.6% to PHP 5.151 trillion from PHP 4.926 trillion a year prior.

Nonbank financial institutions include investment houses, finance companies, security dealers, pawnshops and lending companies. Institutions such as nonstock savings and loan associations, credit card companies, private insurance firms, the Social Security System and the Government Service Insurance System are also considered nonbanks.

The financial system’s total resources stood at PHP 28.806 trillion in 2022, up by 9.3% from a year prior. — Keisha B. Ta-asan

Philippine privileges under the European Union’s (EU) Generalized Scheme of Preferences Plus (GSP+) will be extended by another four years, according to the European Union Ambassador to the Philippines Luc Veron.

“There is no decision to be had, this is just a report on the monitoring (submitted) to the legislators which are the EU Parliament and Council… There is no change, so it is extended,” Mr. Veron told reporters on the sidelines of the Pilipinas Conference on Wednesday. 

He said that the EU Commission on Tuesday sent its report and monitoring to the European legislators on a number of countries that are benefiting from GSP+ including the Philippines.

“We are generally very happy with the data that we have with the Philippine government on the monitoring of the GSP+ and we hope that will continue that way,” Mr. Veron said.

The Philippines participates in the EU’s GSP+, a special incentive arrangement for low and lower middle-income countries. It grants the country zero duties on 6,274 locally made products.

The current arrangement is set to expire by end-2023. With the four-year extension, the Philippine participation in the GSP+ scheme will run through 2027.

Under the scheme, the Philippines is required to uphold commitments to 27 international conventions on human rights, labor, good governance and climate action.

A joint staff working document from the European Commission stated that it is important to provide continuity and legal certainty for GSP beneficiaries and business.

“The EU GSP’s incentive-based approach of engagement has proven successful, and it should, therefore, continue,” the EU Commission said in its report to the legislators.

“In view of the upcoming expiry of the GSP regulation at the end of 2023 and the still ongoing negotiations for a new regulation, the Commission has proposed an extension of the current rules, which was welcomed by the European Parliament and the Council,” it said.

Mr. Veron said the EU will continue with the current scheme because there was no consensus on the revisions among legislators.

“There was an ambition on the part of the legislators in the EU to revise the GSP regulation but there was no agreement [made] among legislators. So, the proposal by the European Commission was to roll over the current legislation for another four years,” he added.

“So therefore, the same rules will apply for the next four years. It’s very important [to note] that the 27 conventions that the Filipinos signed up for will form the basis of the next phase of monitoring of the situation here in the Philippines,” he added.

Department of Trade and Industry Secretary Alfredo E. Pascual said that the extension of the trading scheme will be important to Filipino businesses.

“[The extension] will maintain those who are benefiting from it, like our tuna exporters because EU has a high tariff on tuna, around 20-30%,” said Mr. Pascual in mixed English and Filipino.

“If the GSP+ is not renewed, our tuna exporters will pay the tariffs… so they will become uncompetitive from those other sources of tuna going to the EU countries,” he said.

Mr. Pascual said the DTI will encourage businesses who currently enjoy the benefits of GSP+ to expand their exports to the EU while the preferential tariff rates are still in place.

Makati Business Club Chairman Edgar O. Chua also supported the extension of the trading scheme, saying that “this one is advantageous to the country because this enables access to the market.”

Meanwhile, Mr. Veron said that the Philippines and the European Union are on track to complete the preliminary phase of a free trade agreement (FTA) by the end of this year.

“The European Commission has a mandate to negotiate an FTA with the Philippines… However, negotiations have been suspended in 2017, for various reasons,” he said.

Mr. Veron said that what is taking place now is that both countries are looking up different chapters that would form part of the FTA.

“If we want a very efficient negotiation, we need to know on which chapter we are going to negotiate and basically what is visible and what is less visible, so as to determine the level of ambition of our FTA,” Mr. Veron said.

The EU and the Philippines first launched negotiations for an FTA in 2015, but these have been stalled since 2017. Negotiations were put on hold due to issues on intellectual property rights and data exclusivity, among others.

In August, President Ferdinand R. Marcos, Jr. and European Commission President Ursula von der Leyen announced both sides are exploring the resumption of negotiations for an FTA.

The impact of the El Niño weather event may persist throughout the first half of 2024, which could lead to higher prices of power, imported rice and food items, the Bangko Sentral ng Pilipinas (BSP) said.

The BSP in its November Monetary Policy Report said El Niño could dampen water resources and agricultural productivity next year amid expected dry spells and droughts in some parts of the country.

“The impact of El Niño is quantified through several channels including higher electricity rates due to dry weather conditions, higher domestic crop prices owing to lower production, and higher international rice prices due to lower global production and the implementation of export restrictions,” the central bank said.

“These factors are assumed to persist in the first half of 2024 and contribute to the inflation forecast for the year,” it added.

During the Nov. 16 policy meeting, the BSP raised its baseline inflation forecast to 6% in 2023 (from 5.8% in September) and to 3.7% in 2024 (from 3.5%) but trimmed its 2025 inflation estimate to 3.2% (from 3.4%).

Electricity rates could rise in the fourth quarter to the second quarter of 2024 due to the warm and dry weather conditions from El Niño, according to the BSP.

“A substantial increase in demand for power which could not be supported by power supply reserves could lead to a declaration of yellow or red alerts in the transmission grids, resulting in higher generation charges from the Wholesale Electricity Spot Market (WESM) and independent power producers (IPP),” the central bank said.

Local electric cooperatives may also have to use more expensive alternative sources of power generation amid the expected drop in output from hydropower plants. 

“A 3% month-on-month increase in electricity prices is assumed for the period January to June 2024. This is based on the average increase in the overall electricity rate during the El Niño episode in 2018-2019,” the BSP said. 

Meanwhile, temperature shocks may have a significant negative effect on rice and corn, which accounted for about 8.9% and 0.5% of the consumer price index (CPI) basket, respectively.

El Niño could also lead to stronger demand for rice globally, particularly for imports from Vietnam and Thailand. However, the global rice supply is also vulnerable to El Niño and possible trade restrictions.

“With much of the increase having taken place in the first half of the year due to the combined factors of strong demand and tight supply conditions as well as concerns over El Niño conditions in most of Asia’s rice producers, rice prices on average are seen to be higher. Higher rice prices are assumed starting January 2024,” the BSP said.

China Banking Corp. Chief Economist Domini S. Velasquez in a Viber message said there would be some tightness in food supply through mid-2024 due to El Niño.

“We think that one of the reasons that the BSP continues to remain hawkish is because of the continued threat to food supply/prices in the near term,” she said.

The BSP kept its benchmark interest rate steady at a 16-year high of 6.5% at its policy meeting last week. Since it began its aggressive monetary tightening cycle in May 2022, the BSP has raised borrowing costs by a total of 450 basis points.

Ms. Velasquez noted that historically, prices of food have increased during El Niño or La Niña episodes. Since the current El Niño episode has been expected, she said governments should implement appropriate measures to mitigate the impact.

“Across Asia, countries have been bracing themselves for El Niño’s impact. In fact, in Thailand, the Thais are encouraged to conserve water,” she added.

Federation of Free Farmers National Manager Raul Q. Montemayor said rice crops would need large amounts of water in the planting season between now and February 2024. Farmers would also heavily rely on irrigation during the dry season.

“El Niño may affect the availability of irrigation water if there is insufficient rain, given that irrigation ranks next to potable water use and electricity generation in terms of priority,” he said.  “By March next year, farmers will start harvesting and little rain at this time would be ideal since harvested stocks will not have to be dried much.”

In the BMI Southeast Asia El Niño Exposure Index released in July, the Philippines ranked sixth most vulnerable to El Niño-induced inflationary pressures among 13 countries.

National Economic and Development Authority Secretary Arsenio M. Balisacan earlier said a “slight El Niño” could cause agricultural production to decline by 1-2%.

The Philippines experienced its worst El Niño episode in 1998, when the economy contracted by 0.5% as agricultural production fell by 7%. — By Keisha B. Ta-asan, Reporter

The Bureau of Internal Revenue (BIR) collected PHP 274.429 billion in October, surpassing its target for the month by 8.57%.

The October tally also jumped by 46.94% from PHP 186.759 billion in actual collections a year earlier.

“With the intensification of the bureau’s tax enforcement activities, specifically on the campaign against sellers and buyers of fake receipts, and with the continuous streamlining and digitization of the BIR’s core services, we hope to encourage all noncompliant taxpayers to comply fully with the provisions and requirements of the tax laws,” BIR Commissioner Romeo D. Lumagui, Jr. said in a statement on Tuesday.

In the 10-month period, BIR revenues rose by 11.1% to PHP 2.132 trillion from PHP 1.919 trillion a year ago.

The agency’s collection from January to October already accounted for about 80% of its full-year target.

The BIR is targeting to collect PHP 2.64 trillion this year, which is 13% higher than its collection of PHP 2.34 trillion in 2022.

Mr. Lumagui said the agency would likely reach or even surpass its collection target for the year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the improvement in tax collection was due to the recovery of businesses and other economic activities that led to increased sales, spending and employment.

“Intensified tax collections based on existing tax laws also improved BIR tax revenue collections, as part of fiscal reform measures,” he said in a Viber message.

The BIR has been studying ways to expand its tax base, including using a digital platform.

Last month, it released the final draft of its proposed creditable withholding tax policy for gross remittances of electronic marketplace operators to online sellers. 

Under the draft, a withholding tax of 1% will be imposed on one-half of the gross remittances by domestic e-marketplace operators to online merchants for goods or services sold through their facility.

Earlier, BIR Assistant Commissioner Jethro M. Sabariaga said the agency’s collection for the remainder of the year is expected to be driven by household consumption and government spending.

The BIR collects about 70% of government revenue. — Luisa Maria Jacinta C. Jocson