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The Philippines is on track to achieve its growth and fiscal targets in the Medium-Term Fiscal Framework (MTFF) due to the “better-than-expected” revenue and spending performance, Finance Secretary Benjamin E. Diokno said.

“Specifically, the debt-to-GDP and deficit-to-GDP ratios are likely to be less than forecasted in the MTFF,” he said in a statement on Sunday.

As of end-June, the government’s debt as a share of GDP stood at 61%, still above the 60% threshold considered by multilateral lenders to be manageable for developing economies. The government targets to end the year with a 61.2% debt-to-GDP ratio and bring it below 60% by 2025.

Meanwhile, the deficit-to-GDP ratio stood at 4.8% as of end-June. The government has set a budget deficit ceiling of PHP 1.499 trillion for 2023, equivalent to 6.1% of the GDP.

The Development Budget Coordination Committee (DBCC) said on Friday it “maintains optimism” on reaching its macroeconomic goals this year.

The DBCC held a special meeting on Friday but did not make any changes to its macroeconomic assumptions or growth targets.

The Department of Budget and Management (DBM) said that the committee is scheduled to meet within the first week of December for a final review of its macroeconomic assumptions and fiscal program this year.

The DBCC said it expects to exceed its revenue target this year. “The emerging total revenue collection for 2023 is estimated to be PHP 3.84 trillion to PHP 3.9 trillion, which is above the PHp 3.73-trillion approved DBCC level for the year,” it said.

Government revenues rose by 6.79% to PHP 2.84 trillion in the January-to-September period, surpassing by 2.98% its PHP 2.76-trillion revenue program. As of end-September, revenue collections already accounted for 76.1% of the full-year program.

Meanwhile, the DBCC said that government expenditures are expected to improve in the fourth quarter due to agencies’ accelerated spending and implementation of projects.

The National Government disbursement rate rose to 98.9% as of September from 93.4% as of June.

Data from the Treasury showed that state spending increased by an annual 4.12% to PHP 3.82 trillion in the nine-month period. However, it missed its PHP 3.86-trillion target by 1.06%.

In July, agencies have been ordered to draft catch-up plans to address low budget utilization, after a 7.1% contraction in government spending contributed to the weaker-than-expected 4.3% gross domestic product growth in the second quarter.

Meanwhile, analysts said that while current macroeconomic targets are still doable, the government may need to introduce some reforms.

“If the reforms needed to bring inflation back to (2-4%) target and if the public sector spending commitments are delivered, the goals still look viable,” BPI Lead Economist Emilio S. Neri, Jr. said in a Viber message.

Reforms that will address regulatory bottlenecks and improve ease of doing business may boost private sector confidence, he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that any downward revisions made would only be slight, especially on economic growth.

Economic managers are currently targeting 6-7% GDP growth for this year.

“If a revision is made, I think full-year 2023 growth at 5.8% has a higher probability than 6%,” Bienvenido S. Oplas, Jr., president of a research consultancy and of the Minimal Government Thinkers think tank, said in a Viber message.

Mr. Ricafort said economic growth will be driven by improved labor market figures, overseas Filipino worker remittances, and manufacturing data. — Luisa Maria Jacinta C. Jocson

Headline inflation likely eased to below 6% in October due to lower prices of some food items and a rollback in pump prices, analysts said.

A BusinessWorld poll of 13 analysts conducted this week yielded a median estimate of 5.7% for the consumer price index (CPI) in October. This is within the 5.1-5.9% forecast of the Bangko Sentral ng Pilipinas (BSP) for the month.

If realized, October inflation would be slower than 6.1% in September and 7.7% in the same month last year. It would also be the slowest rate in two months or since 5.3% in August.

However, October would still mark the 19^th straight month inflation breached the central bank’s 2-4% target band.    

The local statistics agency will release the October consumer price index (CPI) data on Nov. 7 (Tuesday).

“Although still elevated, headline inflation likely eased to 5.7% from 6.1% in the previous month. Global oil prices have tapered from the peak in September, which led to lower fuel prices domestically,” HSBC economist for ASEAN Aris Dacanay said in an e-mail. 

In October alone, oil companies cut pump prices for gasoline by PHP 3.1 per liter, diesel by PHP 0.45 per liter, and kerosene by PHP 4.40 per liter, data from the Energy department showed.

“Our latest data show some easing in the cost of essential food items such as rice, meat, and vegetables, as well as reductions in electricity and pump prices this October. While these factors could alleviate inflationary pressures, they may not be substantial enough to warrant diminished vigilance from the central bank given upside risks,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

Data from the Agriculture department showed that prices of beef rump ranged from PHP 390 to PHP 480 a kilo as of Oct. 31, narrower than the PHP 390 to PHP 550 band on Sept. 29. Retail prices of cabbage, white potato and chayote also fell.

However, Mr. Dacanay noted headline inflation may have remained sticky in October as rice prices remain elevated although easing from their high in September.

“To balance the welfare between producers and consumers, authorities decided to lift the price cap of rice in the first week of October without a corresponding decrease in tariff rates. This likely led to some upward correction in the price of rice, keeping overall inflation elevated,” he said.

The prices of local regular milled rice ranged from PHP 41 to PHP 44 a kilo as of Oct. 31, while well-milled rice ranged from PHP 45 to PHP 53.

Prices of rice have steadied after President Ferdinand R. Marcos, Jr. lifted the rice price ceiling on Oct. 4. In September, Mr. Marcos ordered prices to be capped at PHP 41 a kilo for regular milled rice and PHP 45 for well-milled rice.

Meanwhile, Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail that higher jeepney fares and recent minimum wage adjustments may have also put upward pressure on inflation in October.

Starting October, traditional and modern jeepneys increased their fares by PHP 1 to PHP 13 and PHP 15, respectively.   

Wage adjustments in Cagayan Valley, Central Luzon, and Soccsksargen regions took effect on Oct. 16. Regional wage boards recently approved a PHP 30-PHP 35 increase in the daily minimum wages for Ilocos and Western Visayas regions, which will be implemented on Nov. 6.

China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message that higher cooking gas prices and an increase in electricity rates in Metro Manila and Batangas likely added to prices pressures in October.

Liquefied petroleum gas (LPG) prices rose by PHP 3.75 a kilogram in October, its third straight month of increase. AutoLPG prices likewise went up by PHP 2.09 a liter.

Manila Electric Co. hiked the rate for a typical household by PHP 0.4201 per kilowatt-hour (kWh) to PHP 11.8198 in October.

“Meanwhile, core inflation continued its downward trajectory to 5.2% from 5.9% (in September),” Ms. Velasquez said. Core inflation excludes volatile prices of food and fuel.

Back to target
Analysts said it is still possible for headline inflation to return to the 2-4% target band within the fourth quarter this year.

“We think CPI growth within 2%-4% is still achievable within Q4, barring another supply-side shock. However, risks are skewed to the upside and it’s possible that CPI growth will not return to the target band this year,” Makoto Tsuchiya, assistant economist from Oxford Economics, said in an e-mail.

BSP Governor Eli M. Remolona, Jr. earlier said headline inflation may not hit the 2-4% target this year but will instead ease to within target “very briefly” in the first few months of 2024.

He expects inflation will then pick up before easing again in July.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco in an e-mail said the BSP chief’s inflation projection is “far too pessimistic.”

“I still see a half-decent chance that inflation returns to the 4% mark by the end of this year, and it’s worth noting that core inflation has continued to fall, despite the recent increase in the headline rate in recent months, underscoring the waning underlying price pressures amid the weakening in economic growth,” he said.

Ms. Velasquez said inflation will likely reach the 2-4% target in the first quarter of next year, before rising again through July.

“We anticipate inflation to slow for the remainder of the year barring new shocks. Easing price pressures could hold off additional rate hikes from the BSP,” she said.

Mr. Arogo said his baseline estimates show that inflation may remain above 4% until the third quarter of 2024 due to persistent supply issues and second-round effects.

Last week, the BSP hiked borrowing costs by 25 basis points (bps) in an off-cycle move, bringing the key rate to a fresh 16-year high of 6.5%. The BSP has raised policy rates by 450 bps since May 2022.    

The BSP sees full-year inflation at 5.8% for 2023, before easing to 3.5% in 2024 and 3.4% in 2025. Officials have said the BSP would revise its inflation forecasts on Nov. 16.         

The BSP’s next policy-setting meeting is scheduled on Nov. 16. — Keisha B. Ta-asan, Reporter

The growth in Philippine exports and imports will likely remain muted for the rest of the year amid a global economic slowdown and weak external demand, according to the World Bank.

“Overall, the global outlook for goods trade is expected to remain weak for the rest of 2023 as the demand for manufactured goods continues to remain weak in favor of trade in services. This includes the Philippines’ key commodities, such as its electronics exports,” World Bank Philippines Senior Economist Ralph van Doorn told BusinessWorld in an e-mail.

Mr. Van Doorn said that the worldwide economic slowdown “is expected to contribute to a slowdown in global goods trade by about four percentage points in 2023.”

“Of concern for the Philippines is that slowing growth in the region’s largest trading partners, including China where growth for 2023 is projected to be 5.1%, will lead to weaker external demand for the country’s export commodities,” he added.

Data from the local statistics authority showed that the trade deficit narrowed to USD 36.31 billion in the first eight months of the year from the USD 41.86-billion deficit a year ago.

As of end-August, exports declined by 6.6% to USD 47.81 billion while imports fell by 9.6% to USD 84.12 billion.

For this year, the government is projecting 1% growth for exports and 2% growth for imports. 

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the Philippines may find it difficult to meet its export and import growth assumptions.

“If you’re talking about in nominal (i.e. not real terms), then the government’s export and import forecasts will almost be impossible to meet,” he said in an e-mail.

“In real terms, though, 1% full-year export growth seems doable, though I’m questioning whether 2% growth for imports is as achievable, simply because we’re seeing a notable slowdown in domestic demand this year, on all fronts, from private consumption to fixed investment,” he added.

Mr. Chanco noted other major exporting countries are showing signs of a rebound.

“The only silver lining is that we’re starting to see signs from other major exporters regionally, such as Singapore and Malaysia, that electronics exports are starting to bottom out and should start to show signs of a recovery, however modest, before the end of this year,” he said.

“The risks will remain weighted to the downside, considering China’s resistance to enact more aggressive stimulus measures to shore up demand,” he added.

Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) President Danilo C. Lachica said it is still projecting flat growth for electronics exports this year.

“Our growth projection for 2023 is flat. We have not come out with our 2024 projection, but I hope it will be better than 2023,” he said in a Viber message.

SEIPI earlier revised its forecast to flat from 5% due to the weak performance in the first half.

As of end-August, exports of electronic products declined by 4.8% to $26.8 billion year on year. It made up more than half (56%) of total exports during the period. — By Luisa Maria Jacinta C. Jocson, Reporter

More Filipinos have been unable to pay off their loans this year amid high borrowing costs and elevated inflation, but decreasing debt repayment levels may not be a significant risk to financial stability.

A higher number of borrowers were unable to repay their debt this year amid post-pandemic spending, Marie Alexise Charisse Arboleda, head of operations at Collectius, said in an interview with BusinessWorld, and this could rise further as credit card usage is expected to increase this quarter amid the holiday season.

“During this time, many Filipinos tend to prioritize holiday spending, which includes holiday gifting, over debt repayment,” she said. “Given anticipation for high inflation, it is likely that consumers will spend more and we can expect to see a decrease in debt repayment levels across all consumer loans.” 

Consumer credit jumped by 22.7% year on year to PHP 1.17 trillion in August from PHP 950.8 billion a year ago, slightly faster than the 22.6% growth in July, Bangko Sentral ng Pilipinas (BSP) data showed. Specifically, credit card loans expanded by 29.7% year on year in August. 

Overall, outstanding loans disbursed by big banks expanded by 7.2% year on year to PHP 11.06 trillion in August, easing from the 7.7% print in July and was the slowest in 20 months.

“A slowdown in debt repayment rates does pose challenges, but may not necessarily lead to financial crisis…, especially if it is sufficiently addressed by regulatory measures,” Ms. Arboleda said. 

Separate BSP data showed banks’ nonperforming loan (NPL) ratio improved to a four-month low of 3.42% in August from 3.43% in July.

Bad loans declined by 5.9% year on year to PHP 442.9 billion as of end-August. However, this was 0.6% higher than PHP 440.1 billion seen at end-July.

Slower debt repayments can hurt banks and make it harder for financial institutions to lend money and provide financial services, Ms. Arboleda said.

“But banks and other financial institutions in the Philippines are well-capitalized and they generally have risk mitigation strategies in place,” she said.

“The (government) might take steps to reduce risks and support the financial system, especially during tough times, and we saw that also during the pandemic,” she added. 

During the coronavirus pandemic, Filipinos paid their debt on a monthly basis instead of settling them at once, Ms. Arboleda said. 

“Monthly payments have become the standard practice for most loans and it provides borrowers with a structured schedule for clearing their debts,” she said. 

But the high interest rate environment will affect debt repayments as borrowers will need to settle higher monthly installments, especially for credit card loans, she added.

“Additionally, the impact of inflation on debt repayments varies depending on our economic conditions as well. So, if our prices are going up, it can be tougher for Filipinos to manage their debt,” Ms. Arboleda said.

Credit card usage
Credit cards are likely the biggest debt source for average Filipinos as it is one of the most used payment channels, she said.

“Based on our research together with CCAP (Credit Card Association of the Philippines), the total amount of credit card billings is up to P400 billion. This shows that our economy is resilient, but it also means that the Filipinos are turning to borrowing money because of high inflation, which is making their purchasing power weaker,” she said.

Inflation may also affect unbanked Filipinos as it limits their purchasing power, saving options, and make them more sensitive to economic problems, she said.

Ms. Arboleda also noted that the Philippines has seen a gradual shift to digital and card-based payments that accelerated during the pandemic.

“Credit card usage for online and e-commerce was on the rise. Filipinos purchased everything online, from groceries, medicine, food, we paid it online via our credit cards,” she said.

“Also, during the pandemic, savings were touched, which caused people to be alarmed a little. That’s why they use credit or credit cards as their main source (of finance) during the pandemic to survive,” she said.

Credit card use will continue to surge in the Philippines in the coming years, Ms. Arboleda said.

“With the increase of post-pandemic revenge spending and elevated inflation, many customers will rely on consumer credit. The pandemic made it even more popular because it pushed Filipinos to use online and contactless ways of payment,” she said.

“I expect the credit card usage to increase further given the increasing digital literacy with the younger and more digitally savvy population. However, it is crucial for average Filipinos to be aware of their financial situations to avoid defaulting or falling into a debt trap,” she said.

There is still room to enhance financial literacy in the Philippines despite numerous programs and campaigns handled by the government, Ms. Arboleda said.

“How much people use credit cards and how well they repay their debt will depend on our economy. If the economy is doing okay or it’s getting better, it gives people the confidence to use their credit cards because they feel good about being able to pay off what they owe,” she said. “But if our economy is not doing so well and there are job losses and incomes aren’t stable, people tend to be more careful with their credit card use. That can affect the way how they pay their debts.”

“That’s why at Collectius, information is very important to us. We pay close attention to the market trends for both the bank and unbanked customers and we ensure that our customers are well supported with the knowledge in managing their debts,” Ms. Arboleda added.

Collectius, a financial technology company, is one of the five Financial Institutions Strategic Transfer Corporations in the Philippines licensed to acquire nonperforming loans or assets accumulated by banks during the coronavirus pandemic. — Keisha B. Ta-asan