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THE PHILIPPINE government has finalized the implementing rules and regulations (IRR) for its first-ever sovereign wealth fund, less than a month after it was suspended to supposedly improve the fund’s organizational structure.

“The IRR of the Maharlika Investment Fund (MIF) has been finalized. Upon approval, we’ll swiftly establish the corporate structure, getting the MIF up and running,” President Ferdinand R. Marcos, Jr. said in a Palace statement on Monday.

The Palace did not provide other details on the changes to the IRR.

In an order dated Oct. 12, Mr. Marcos ordered the suspension of the IRR of the law that created the MIF. The letter was addressed to the Bureau of the Treasury as well as the heads of the Land Bank of the Philippines (LANDBANK) and the Development Bank of the Philippines (DBP).

The suspension came after the LANDBANK and DBP had already remitted P50 billion and P25 billion, respectively, for the initial funding of the sovereign wealth fund as required under the law.

Executive Secretary Lucas P. Bersamin had said Mr. Marcos had wanted to carefully study the IRR “to ensure that the purpose of the fund will be realized for the country’s development with safeguards in place for transparency and accountability.”

Concerns over the financial stability of the two state banks swirled after they sought regulatory relief from the Bangko Sentral ng Pilipinas’ capitalization requirements after remitting their contributions.

“We would like to see provisions which broaden transparency and accountability in managing the fund, while allowing fund managers the agility and flexibility to maximize fund return,” public investment analyst Terry L. Ridon said in a Facebook Messenger chat.

Mr. Ridon said Malacañang should have included “a little bit more details” on the exact changes in the IRR and avoid letting the public second-guess the developing plans regarding the fund “considering that it’s a flagship economic program.”

“It is critical for us to see who gets to sit in the inaugural MIF board because that would spell this administration’s commitment to effective stewardship of our resources and MIF’s promised contribution to national development,” Emy Ruth Gianan, who teaches economics at the Polytechnic University of the Philippines, said via Messenger.

She said it is notable that the MIF “remains active in the public eye.”

Economists earlier told BusinessWorld that the suspension may be aimed at allowing the President to have greater say on the choice of the Maharlika Investment Corp.’s top executives.

They also flagged the original IRR’s lack of guidance on how foreign or local private investors can participate or invest in the fund.

Despite the suspension of the rules, Mr. Marcos last month vowed the MIF will be operational before the end of the year.

“We are still committed to having it operational before the end of the year,” he said in his departure speech before leaving Manila for a meeting between Southeast Asian and Gulf leaders in Saudi Arabia in October.

Finance Secretary Benjamin E. Diokno had pitched the investment opportunities in the MIF during a meeting with top Saudi business leaders in October.

“To achieve this, Maharlika aims to attract capital from both domestic and global equity investors, including large funds here in the Middle East seeking to diversify its portfolio in fast-growing emerging markets like the Philippines,” Mr. Diokno was quoted as saying in a statement last month.

Investments in the MIF would be used to ramp up the implementation of the country’s high-impact infrastructure flagship projects estimated to be worth around $153 billion.

“The fund also presents exciting opportunities for green and blue investments, ESG (environmental, social, and corporate governance) linked fixed-income instruments, and cutting-edge technologies with the advent of artificial intelligence and cloud computing,” he said. — Kyle Aristophere T. Atienza

THE PHILIPPINE government is considering official development assistance (ODA) from Japan, South Korea, and India to fund three major railway projects after it dropped China as funding source. 

“There are three projects to be funded by China — Bicol’s South Long-Haul, Mindanao Railway, and Subic-Clark Railway. Maybe this year the contract will be fully terminated. If it will not be funded by China, it will be funded by another ODA,” Transportation Secretary Jaime J. Bautista told reporters on the sidelines of a forum organized by the Economic Journalists Association of the Philippines on Monday.

Last month, Mr. Bautista said that the Philippines is withdrawing its request for ODA from China for three railway projects, citing “lack of progress” on financing.

“[We are] working with other countries. We are exploring this, but we cannot give details yet. The alternative funding may come from ODA — South Korea, Japan, and India,” he said.

Aside from ODA, the Philippines may also seek funding from the World Bank, Asian Development Bank (ADB) and the Japan International Cooperation Agency, Mr. Bautista said.

Finance Secretary Benjamin E. Diokno said funding for phase 1 of the Mindanao railway project could be finalized by the first quarter of 2024.

“It could be official development assistance, (like from) Japan. India has also shown interest… We are looking now. It could be a combination of Japan and the ADB,” Mr. Diokno told reporters at a separate event.

The Finance chief said the government will still pursue the Mindanao Railway project since feasibility studies have already been completed.

Phase 1 of the Mindanao railway project, estimated to cost P83 billion, would stretch from Tagum in Davao del Norte to Digos City in Davao del Sur. It is expected to accommodate 122,000 passengers per day and cut travel time between Tagum and Digos from three hours to one.

Asked if the Mindanao railway can be financed through the Maharlika Investment Fund (MIF), Mr. Diokno said this was a possibility, but it would not be fully financed by the sovereign wealth fund.

Aside from the Mindanao railway, the government has also pulled its request for ODA from China to fund the P50-billion Subic-Clark railway and the Philippine National Railway’s PHP 142-billion South Long Haul railway.

“The negotiations have been slow. It’s not moving, so we have to explore other sources,” Mr. Diokno said.

President Ferdinand R. Marcos, Jr. last year ordered Transport officials to renegotiate loan deals with China that began during the Duterte administration in 2018. However, these loan agreements were “withdrawn” after China did not act on the funding request.

Despite the delays in funding, Mr. Bautista said they still expect to complete these railway projects by the end of 2028.

“We need to get the funding first; funding is one of the challenges because we already have the design. Due to the delays, we may need to get approval for the change of cost because maybe it will be higher, we’ll study that. We are working on it,” he said. — Ashley Erika O. Jose and Luisa Maria Jacinta C. Jocson

THE PHILIPPINE banking system remained stable and robust in the first half, posting higher income, sufficient capital and liquidity buffers amid a high-interest rate environment and inflationary pressures.

The financial system sustained its robust performance and supported economic activity, the Bangko Sentral ng Pilipinas (BSP) said in a report on the Philippine financial system for the first semester.

“The overall key performance indicators of the Philippine financial system and the domestic banking system show that this sector continues to be a source of strength for the Philippines, capable of meeting the demands of a growing digital and sustainable economy,” BSP Governor Eli M. Remolona, Jr. said in a statement. 

The banking sector had a strong balance sheet, profitable business operations, enough capital and liquidity buffers, as well as ample provisions for losses, the BSP said.

Banks’ assets rose by 9.1% to PHP 23.3 trillion in June, faster than the 7.8% growth recorded last year. By banking group, universal and commercial banks (U/KBs) had the largest share of assets at 93.9%.

For the January-June period, banks’ net profit increased by 27.7% to PHP 182.8 billion, faster than the 16.7% growth in the same period last year.

Banks’ interest income surged by 48.4% year on year. Loans to private firms (P221.6 billion), households (P129.9 billion), as well as investments in securities (P130.3 billion), generated bulk of banks’ interest income. 

Overall return on equity and return on assets improved to 12.8% (from 9.6%) and 1.6% (from 1.2%), respectively.

The banking sector remained profitable as revenues from lending and investing activities boosted earnings.

Total investments reached PHP 6.6 trillion in the first semester, 9.2% higher year on year. Around 60% or PHP 4 trillion of the banking system’s investments were debt securities measured at amortized cost.

“Amid growing resources, deposits and earnings, Philippine banks remain well-capitalized and highly liquid, with a capital adequacy ratio and key liquidity ratios exceeding the BSP regulatory and international standards,” the BSP said.

As of March, the capital adequacy ratios (CARs) of the banking system were at 16% and 16.6% on solo and consolidated bases, respectively. All banking groups also maintained high capital ratios.

The consolidated CAR of the U/KB industry stood at 16.4%. The CARs of stand-alone thrift banks (TBs), rural and cooperative banks (RCBs), and digital banks (DGBs) reached 20.8%, 21.3%, and 20%, respectively.

The risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be less than 10% for both solo and consolidated basis. 

“Based on the results of the latest stress test exercises, the banking system’s post-shock CAR would remain above the regulatory minima under assumed scenarios, including a possible shock in the property market. The BSP conducts regular and ad hoc stress tests as part of its enhanced surveillance toolkit,” the BSP said. 

Philippine banks had a stronger capital position in the first semester, with equity growing by 11% to P2.9 trillion as of end-June, beating the 2.7% expansion a year ago, the BSP said. 

U/KBs held the largest share of the banking system’s total capital at 91.7% (PHP 2.6 trillion). The remaining amount was held by TBs, RCBs, and DGBs at 5.3% (PHP 152.3 billion), 2.5% (PHP 72.2 billion), and 0.4% (PHP 11.6 billion), respectively.

The BSP noted that banks were able to maintain sufficient buffers to meet liquidity and funding requirements. 

Preliminary data showed the U/KB industry’s solo liquidity coverage ratio stood at 183.1% as of June, while its net stable funding ratio hit 139.1% as of March. Both are well above the 100% minimum threshold set by the central bank.

The ratio of deposits to loans also stood at 143.1% in the first half, a tad lower than 144.5% from the same period a year ago, but still well above 100%, central bank data showed. 

“Moving forward, the BSP is steadfast in ensuring that the Philippine financial system is safe and sound in keeping with its financial stability mandate,” the BSP said. 

“In this regard, the BSP will continue to collaborate and closely work with relevant stakeholders in the adoption of key financial sector reforms aimed at ensuring institutional stability, promoting responsible innovation, and advancing sustainability in the financial system,” it added. 

As of June, there were a total of 490 banks with 12,845 branches and other offices, 2,064 nonbank financial institutions with 22,440 branches, and one offshore banking unit. — Keisha B. Ta-asan

President Ferdinand R. Marcos, Jr. on Monday said his government has finalized rules for the Philippines’ first sovereign wealth fund and that authorities aimed to get the fund operating swiftly.

Mr. Marcos last month suspended the implementation of the Maharlika Investment Fund (MIF) to ensure transparency and accountability in the fund’s management.

“Upon our approval, we’ll swiftly establish the corporate structure, getting the MIF up and running,” Mr. Marcos said on Facebook.

The government plans to start the fund’s operations by year-end. 

The fund, signed into law in July, has been touted by Mr. Marcos as a key plank for economic growth and infrastructure development.

Under the law, the fund would issue P500 billion (USD 8.96 billion) worth of preferred and common shares which the government, state-run firms, and banks can purchase.

The Philippines is relatively late in setting up a sovereign wealth fund in the region, with neighboring Indonesia launching its fund in 2021, and Singapore long having established one.

The sovereign wealth fund of neighbor Malaysia, 1Malaysia Development Berhad, was engulfed in a multi-billion-dollar graft scandal. — Reuters

Philippine economic growth likely picked up in the third quarter amid a recovery in government spending, although elevated inflation and high interest rates may have dampened household consumption, analysts said.

A BusinessWorld poll of 18 economists and analysts last week yielded a median gross domestic product (GDP) growth estimate of 4.9% for the July-September period, a tad faster than the preliminary 4.3% growth recorded in the second quarter.

However, this pace would be slower than 7.7% in the July-September period a year ago.

If realized, this would bring the nine-month average GDP expansion to 5.2%, still below the government’s 6%-7% full-year target. 

The Philippine Statistics Authority (PSA) is set to release third-quarter GDP data on Nov. 9.

Analysts said that a recovery in government spending and steady household consumption likely drove the GDP growth in the July-to-September period. However, the pace of economic expansion may have been tempered by persistent inflation and high borrowing costs.

“A catch-up in government spending should have provided some lift to overall GDP. However, household consumption and private investment likely provided much weight, limiting how much the overall figure can be lifted,” Aris Dacanay, Association of Southeast Asian Nations (ASEAN) economist at HSBC Global Research, said in an e-mail.

Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, gave a 4.2% GDP growth forecast for the third quarter due to the expected “modest rebound” in government spending.

“But capital formation could slide deeper into negative territory. Consumption should still be positive but the weight of elevated prices and rising household debt amidst a high interest rate landscape could be a drag on all important household spending,” Mr. Mapa said in an e-mail.

Latest Treasury data showed state spending rose by 4.12% to PHP 3.82 trillion in the nine months to September from PHP 3.67 trillion a year ago.

“However, growth in public construction may be dampened by weaker activities on the private side given the high interest rate environment,” Domini S. Velasquez, chief economist at China Banking Corp.  said in an e-mail.

The slower-than-expected second-quarter GDP growth was partly attributed to the 7.1% contraction in government spending. Household consumption also grew at a weaker pace of 5.5% during the second quarter from 8.5% a year ago.

On the expenditure side, private consumption historically accounts for about three-fourths (75%) of the Philippine economy, while government spending contributes a little over a tenth.

Pantheon Macroeconomics Chief Emerging Asia economist Miguel Chanco estimated that economic growth further slowed to an annual 3.1% in the third quarter as private consumption deteriorated partly due to unfavorable base effects.

“Moreover, total investment probably will shrink for the first time since the coronavirus disease 2019-hit years, albeit only modestly. Net trade should provide more support to growth, however perversely, as it will be flattered by a pullback in imports, which is statistically growth-positive,” he said in an e-mail.

Mr. Chanco expects government spending to have grown above 2% in the third quarter, reversing the sharp contraction in the previous quarter.

“I expect momentum sequentially, quarter on quarter, to remain fairly weak and subdued, as private consumption continues to struggle with poor balance sheets (inadequate savings, a lot more debt than in recent years),” he said, noting that labor demand is beginning to stagnate, and remittance growth is slowing.

Ms. Velasquez said services likely drove growth on the supply side “with strong gains in transportation, accommodation, food service activities, and arts and recreation.”

“Manufacturing likely saw some increased demand in preparation for the holidays. Meanwhile, we remain pessimistic about agriculture as strong typhoons hit the country in July-August and El Niño continues to pose a risk on production,” she said.

Makoto Tsuchiya, assistant economist at Oxford Economics, said he expects the economy to have expanded by 4.3% in the July-to-September period due to base effects after a sequential decline in the second quarter.

“We expect a statistical bounce-back, but it won’t be a significant improvement given the surrounding macroeconomic conditions. The external demand continues to suffer, although the end of the IT cycle downturn likely lent some support to the electronics exports,” Mr. Tsuchiya said.

High rates
Meanwhile, economists warned the Bangko Sentral ng Pilipinas’ (BSP) aggressive policy tightening may hurt GDP growth for the rest of the year.

“The lagged impact of past monetary tightening will continue to constrain domestic demand, particularly weighing on business investment. These headwinds are likely to intensify towards the end of the year and into 2024,” Mr. Tsuchiya said.

The BSP resumed monetary tightening in an off-cycle 25-basis-point (bp) rate hike in October, bringing the policy rate to a new 16-year high of 6.5%. Since May 2022, the central bank has hiked rates by a cumulative 450 bps.

This as headline inflation quickened for a second straight month to 6.1% in September. Inflation averaged 6.6% from January to September, still above the BSP’s 5.8% forecast for 2023.

“Clouds are darkening above Philippine’s 2023 outlook. For starters, households will struggle as inflation remains above the BSP’s 2-4% target rate and interest rate stays high through the rest of 2023. That broad weakness in demand will also cap private investment,” Moody’s Analytics economist Sarah Tan said in an e-mail.

Ms. Tan said she expects government spending to improve in the last quarter, and net exports to see modest gains. The Philippine economy will likely expand 5.2% in 2023, slower than the 7.6% print in 2022 but “will once again outperform its regional peers this year,” she added.

Ms. Velasquez said increased activities during the holiday season will likely provide support to the economy.

“The fourth quarter and full-year growth will still likely fall short of the government’s 6-7% target. Our full-year growth forecast for 2023 is around 5.2%. We think the economy will fare better in 2024 as inflation and interest rates go down,” she said. — Lourdes O. Pilar