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The private sector needs to invest more in hotel accommodations to support the growth of the country’s tourism industry, according to real estate brokerage company Leechiu Property Consultants, Inc. (LPC).

“To sustain the growth in the Philippine tourism industry, there’s a pressing need for greater private sector investment in additional hotel accommodations. Initiating these investments within the next year is critical to fortify international tourism beyond 2027,” the company said in a statement over the weekend.

According to LPC, about 15,000 new hotel rooms are expected to be delivered within the next five years, primarily located in Metro Manila.

It added that more hotel projects are likely to be announced in the coming months or years in line with the Department of Tourism’s (DoT) target of 12 million international arrivals by 2028.

DoT figures showed that the country logged 4.005 million international arrivals as of Sept. 29, nearing its full-year 2023 target of 4.8 million foreign visitors.

Of the total international arrivals, 91.58% or 3.67 million were foreign visitors while the remaining 8.42% or 337,426 were overseas Filipinos.

Meanwhile, LPC projected that Panglao Island in Bohol could surpass Boracay Island as the country’s premier tourism destination.

“In 2019, Panglao reached an impressive 1,581,904 visitors, coming close to Boracay’s 2,034,599 arrivals during the same period. Given these promising figures, it’s becoming increasingly likely that Panglao Island could surpass Boracay Island as the Philippines’ premier tourism destination,” LPC said.

Alfred Lay, Leechiu director for hotel, tourism, and leisure, said one advantage that Panglao has over Boracay is its larger size and capacity limits.

He added that ongoing developments in Panglao could increase land values in the area. Some of these are the proposed 50-hectare Panglao Shores project, the upcoming JW Marriott Hotel, the Cebu-Bohol bridge, and large-scale energy initiatives aimed at meeting Bohol’s surging energy requirements.

“These developments have had a significant impact on land values, with Alona Beachfront properties now priced at approximately PHP 80,000 to PHP 120,000 per square meter, approaching the land values in Boracay’s white beach area,” Mr. Lay said.

LPC projected that tourist arrivals, flight capacity, and hotel occupancy rates across the global tourism industry could return to pre-pandemic levels by next year.

“Industry stakeholders should look out for certain trends that can greatly impact the Philippines in the coming year, including the relaxation of visa restrictions, persistent high airfares driven by escalating aviation fuel costs, ongoing inflation, a high-interest rate environment that may leave consumers with diminished purchasing power, and the return of business travel and MICE (meetings, incentives, conferences, and exhibitions) events,” LPC said. — Revin Mikhael D. Ochave

Investors are expected to remain cautious and stay on the sidelines this week as they continue to monitor developments in the Middle East and how they will affect the global economy.

The benchmark Philippine Stock Exchange index (PSEi) went down by 76.26 points or 1.22% to close at 6,142.90 on Friday, while the broader all shares index shed 36.37 points or 1.08% to end at 3,329.42.

Week on week, the PSEi fell by 13.33 points or 1.97% from its close of 6,266.34 on Oct. 13.

“The failure of the index to hold above the important 6,150 support level last Friday will shift the tone of trading towards caution this week,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.

“Increasing US Treasury yields and the volatile Israel-Hamas conflict have dampened risk sentiment as investors wrestle with tight monetary policy, upward oil price pressure, and geopolitical tension,” Mr. Colet added.

The market is expected to be in a generally cautious mood due to the war, online brokerage 2TradeAsia.com likewise said.

“As geopolitical tensions increase, confidence in future fundamentals decrease — and so do asset prices. After all, risk aversion is the human tendency to switch to more certain outcomes to avoid loss,” 2TradeAsia.com said in a report.

The war has compelled investors “to reevaluate their strategies and shift their focus from riskier assets to safer investments,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message.

Israel pounded southern Gaza with air strikes early on Sunday and said it would intensify its attacks in the enclave’s north, as Washington pledged more air defences to the Mideast in response to recent attacks on US troops in the region, Reuters reported.

Palestinian media reported at least 11 Palestinians were killed in an Israeli strike in the southern Gaza city of Khan Younis, and that Israel was striking the southern city of Rafah.

The strikes came hours after Israeli military spokesperson Rear Admiral Daniel Hagari called on Gazans to move south out of harm’s way.

Israel started its “total siege” of Gaza after an Oct. 7 cross-border attack on southern Israel by militants of the Islamist movement Hamas killed 1,400 people, mainly civilians, in a shock rampage that has traumatized Israel.

Meanwhile, inflation concerns at home could affect this week’s trading, Mr. Arce added.

Minutes of the Bangko Sentral ng Pilipinas’ Sept. 21 meeting released last week said the Philippines may miss its 2-4% annual inflation target for a third straight year in 2024.

For this week, online brokerage 2TradeAsia.com placed the PSEi’s support at 6,000 and resistance at 6,300, while Mr. Arce put support at 6,142 and resistance at 6,261-6,300. — SJT with Reuters

The Philippines’ overall balance of payments (BoP) position narrowed significantly to USD 414 million in September from the USD 2.34-billion gap in the same month a year ago, the central bank said.

Data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed the country’s BoP position remained in deficit for a sixth straight month in September. It was also the widest deficit since the USD 606-billion gap in June. 

Month on month, the BoP deficit widened from the US D57-million deficit in August.

“The BoP deficit in September 2023 reflected net outflows arising mainly from the National Government’s (NG) payments of its foreign currency debt obligations,” the central bank said in a statement.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.

For the nine-month period, the Philippines’ BoP position swung to a surplus of USD 1.74 billion from the USD 7.83-billion deficit in the same period in 2022.

“This development reflected mainly the improvement in the balance of trade and the higher net inflows from personal remittances, trade in services, and foreign borrowings by the NG,” the BSP said.

Latest data from the local statistics agency showed the country’s trade deficit stood at USD 4.13 billion in August, narrower than the USD 4.2-billion gap a month prior and the USD 6.03-billion deficit a year earlier.

Year to date, the trade deficit shrank to USD 36.31 billion from the $41.86-billion gap during the same period in 2022.

“Given that the current account is likely in deficit due to the sizable trade deficit, financial account inflows, most likely tied to government issuances of bonds, likely pushed the BoP into a surplus (in the January-to-September period),” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.    

The government raised $1.26 billion from the retail dollar bond offering in late September.

“The retail dollar bond issuance during the month helped bring the deficit to USD 414 million, offsetting the trade deficit,” Mr. Mapa added.

At its end-September position, the BoP reflected a final gross international reserve level of USD 98.1 billion, 1.5% lower than USD 99.6 billion as of end-August.

The dollar reserves were enough to cover 5.7 times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity.

It is also equivalent to 7.3 months’ worth of imports of goods and payments of services and primary income.

An ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability to pay debts in the event of an economic downturn.

“The BoP may remain in deficit for the rest of the year given our expectation for the current account to stay in the red,” Mr. Mapa said.

In the second quarter, the current account deficit reached USD 3.6 billion, or equivalent to -3.4% of gross domestic product (GDP), which was lower than the USD 8-billion shortfall a year ago.

This brought the current account deficit in the first semester to $8.2 billion (-4% of GDP), a 32.2% reduction from the $12.1-billion deficit (-6.1% of GDP) recorded in the same period last year.

“There is a planned Sukuk issuance but we’ve yet to hear more details on the timing,” Mr. Mapa said.

The government is planning to launch Sukuk bonds by end-November. It is targeting to raise around $1 billion from the Islamic bonds, which will have a minimum denomination of at least USD 200,000.

The BSP expects the country’s BoP position to end the year at a USD 127-million deficit (0% of GDP). — Keisha B. Ta-asan

The Philippines’ first sovereign wealth fund will start operating by yearend, President Ferdinand R. Marcos, Jr. said on Thursday after suspending it supposedly to improve its organizational structure.

“The organization of the Maharlika fund proceeds apace,” he said before leaving for Saudi Arabia, where he is expected to promote the fund. 

“We have found more improvements we can make, specifically to the organizational structure of the Maharlika fund,” he added, amid criticisms that the wealth fund threatens the financial stability of two state banks.

Mr. Marcos said the concept of the Maharlika Investment Fund (MIF) “remains a good one” and therefore, “we are still committed to having it operational before the end of the year.”

The Oct. 12 memorandum ordering the suspension of the MIF law’s implementing rules and regulations (IRR) 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 President insisted that the suspension must not be seen as “a judgment of the rightness or wrongness of the Maharlika fund.”

“On the contrary, we are just finding ways to make it as close to perfect and ideal as possible, and that is what we have done,” Mr. Marcos said, adding that he consulted economic managers and other people who would be involved in the fund’s operations.

“Their inputs had been very important and that is why we are now going to utilize them to make it a better organization.”

In a statement, Budget Secretary Amenah F. Pangandaman said the economic team will work closely with the President “to prudently review all provisions line by line and make sure that all things are in order.”

“We will also take this opportunity to engage in more multi-stakeholder groundwork in preparation for the launch of the MIF.”

Damage to credibility
If the issue is just a matter of improving the organizational structure of the investment fund, “why suspend the whole of Maharlika,” Action for Economic Reforms coordinator Filomeno S. Sta. Ana III said in a Facebook Messenger chat.

“This shows an utter failure of communication. Or it shows the confusion in Malacañang,” he said. “This further damages the leadership’s credibility.”

Mr. Sta. Ana noted that the Philippine government’s credibility matters most for investors.

Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños, expressed doubt if the MIF could start operations before yearend when there’s only just two and a half months to go.

“Making a new fund operational in that limited time period is implausible. The IRR revision may take at least two weeks or even more than two months depending on how serious the administration is in making the rules better,” he said via Messenger chat.

Earlier, observers said the suspension of the IRR may be aimed at allowing the President to have greater say on the choice of the Maharlika Investment Corp.’s top executives.

“Whether the President and the MIF proponents like it or not, the directive — to suspend the implementation of the IRR is an admission that something is wrong or amiss with the MIF — certainly in the IRR, and likely even in the law itself,” Mr. Villanueva said.

For GlobalSource Partners Country Analyst Diwa C. Guinigundo, the problem is not the fund’s organizational structure “but the whole concept of putting up a sovereign investment fund when we have chronic fiscal deficit and rising public debt.”

“It’s a missed opportunity for the President to rectify this piece of bad legislation,” he said in a Viber message. “With this very tentative mode of formulating and executing public policy, it would be difficult to inspire investment confidence and market support.”

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch, said the IRR suspension should pave the way for the government to assess the performance of the LANDBANK and DBP which have remitted their contributions to the MIF.

“If the banks’ performance flounders in the next few months to at most a year, the government should reassess whether it should dive quickly into MIF investment or focus on strengthening the performance of government banks instead,” he said via Messenger chat. 

The suspension of the Maharlika fund’s implementation came amid concerns on the financial stability of LANDBANK and DBP, which were required to contribute P50 billion and P25 billion, respectively, to the fund’s startup money.

After remitting their contributions, the two banks sought regulatory relief from the central bank’s capitalization requirements.

Earlier this month, Foreign Affairs Assistant Secretary Daniel R. Espiritu said Mr. Marcos is expected to promote the Maharlika fund during his meetings with investors on the sidelines of his participation in the first-ever summit between Southeast Asian and Gulf leaders today (Oct. 20).

Mr. Marcos, in his pre-departure speech, said his government was “encouraged by the reaction of our friends in the Middle East and for that matter around the world to the fund.”

“We’re very encouraged that we are going down the right path.”

Bayan Muna Chairman Neri J. Colmenares said that following the suspension of the MIF law’s IRR, the High Court should “see that the chief executive himself is now hesitant of his pet project and that there is indeed no need for its certification of urgency.”

“The Office of the President’s reason for stopping the MIF’s implementation is to “further study the plan” — meaning it was rushed and half-baked,” he said in a Thursday statement. “We urge the Supreme Court to decide on our petition against the constitutionality of the railroaded passage of the Maharlika law and forever prohibit this presidential abuse of the power to railroad legislative proceedings.”

Gary Ador Dionisio, dean of the De La Salle – College of Saint Benilde School of Diplomacy and Governance, said the government has failed to prove that it is capable of protecting public money. 

“MIF is unnecessary and untenable to protect taxpayers’ money,” he said via Messenger chat. “A weak institution like the Philippines will always be prone to oligarchic interest.” — By Kyle Aristophere T. Atienza, Reporter

Private sector economists raised their inflation outlook for this year through 2025 due to recent supply-side shocks, although they still expect inflation to return to the 2-4% target range in 2024 and 2025, the Bangko Sentral ng Pilipinas (BSP) said.

Based on the results of the BSP’s survey of external forecasters in September, the average inflation forecast of analysts for 2023 went up to 5.9% from just 5.5% in the August survey.

Economists’ mean inflation forecast for 2024 and 2025 also climbed to 3.7% (from 3.5% previously) and 3.5% (from 3.4%), respectively.

The analysts’ forecasts are slightly above the central bank’s projections. The BSP sees average inflation at 5.8% this year, before easing to 3.5% in 2024 and 3.4% in 2025.

“Analysts expect inflation to accelerate anew due to recent supply-side shocks domestically and overseas,” the BSP said in the highlights of the Sept. 21 Monetary Board meeting.

“They also anticipate further upside risks to the inflation outlook, due mainly to supply disruptions, particularly from the adverse impact of weather disturbances and trade restrictions,” it added.

At its Sept. 21 meeting, the Monetary Board kept the key interest rate unchanged at a near 16-year high of 6.25%. This was after hiking borrowing costs by 425 basis points from May 2022 to March 2023.

“The Monetary Board deemed it appropriate to maintain prevailing monetary policy settings while emphasizing the BSP’s focus on resuming monetary policy tightening action to respond to emerging upside risks to the inflation outlook and potential second-round effects that could dislodge inflation expectations,” the BSP said. 

The central bank’s policy-making body also called for more non-monetary interventions such as the temporary reduction of import tariffs and timely arrival of imported commodities.

“The BSP also continues to prioritize the restoration of inflation towards a target-consistent path over the medium term, in line with its primary mandate to ensure price stability,” it said.

However, the risks to the inflation outlook are on the upside, which could cause inflation to breach the 2-4% target next year, the central bank said.

“The potential impact of higher transport charges is among the major risks to the inflation outlook given the fare increase petitions filed by transport groups in August 2023 due to elevated oil prices,” the BSP said. 

The Land Transportation Franchising and Regulatory Board had approved the P1 provisional jeepney fare increases nationwide, raising the minimum fare to P13 starting Oct. 8. For modern jeepneys, the new minimum fare would be P15.

“Other key upside risks to the inflation outlook are the impact of El Niño weather conditions on food prices and utility rates, higher-than-expected minimum wage adjustments, and higher domestic prices of key food items facing ongoing supply constraints,” the BSP said.

BSP Governor Eli M. Remolona, Jr. earlier said that the Monetary Board may resume its monetary tightening at its next policy-setting meeting on Nov. 16 if risks to the inflation outlook persist.

Mr. Remolona also hinted at an off-cycle rate hike, but he said the BSP still needs to review the latest data before coming up with a decision. — Keisha B. Ta-asan

The Philippines is unlikely to hit its 6.5-8% gross domestic product (GDP) growth target in 2024, due to high borrowing costs and increasingly gloomy trade outlook.

“We are expecting Philippine economic growth to accelerate from 5.3% in 2023 to 6.2% in 2024. That is still less optimistic than the government’s projections of 6.5-8%,” BMI Asia Country Risk Analyst Shi Cheng Low said in an e-mail.

He noted the dimmer trade outlook and elevated interest rates to tame rising inflation are two major headwinds to the economy’s expansion next year.

“We think that the trade cycle downturn has further to run. Growth in both the US and Mainland China, the Philippines’ two largest partners, is set to slow next year, which will limit any recovery in exports,” Mr. Low said.

Mr. Low said in a webinar on Tuesday that the US economy may enter a shallow recession in the second and third quarter of 2024, while China’s economic growth may slow to 4.7% in 2024 from 5.2% this year.

The Development Budget Coordination Committee projects goods exports and imports to grow by 1% and 2%, respectively, this year. Exports growth is expected to stabilize at 6% in 2024 to 2028, while imports are expected to grow by 8% annually during the same period.

Mr. Low said the Bangko Sentral ng Pilipinas (BSP) will also likely maintain its hawkish stance during the first half of 2024, as inflation remains elevated.

“Increasing price pressures will prompt the central bank to resume its tightening cycle. We now think that a hike of 25 basis points (bps) is possible in the November meeting,” he said.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board is considering another 25-bp rate hike on Nov. 16, and even hinted at an off-cycle rate hike if price pressures persist.

“Still, we think the tightening cycle will have not much further to run beyond that,” Mr. Low said.

The BSP has kept the key interest rate at a near 16-year high of 6.25% for the last four meetings. To curb inflation, it has hiked borrowing costs by 425 bps from May 2022 to March 2023.

BMI expects Philippine inflation to average around 3.6% next year, well within the 2-4% target band of the BSP, but a tad higher than the central bank’s 3.5% forecast for 2024.

“But we note that risks are skewed to the upside due to the El Niño phenomenon and the Hamas-Israel conflict being potential sources of upside price volatility,” Mr. Low said.

Meanwhile, Security Bank Corp. Chief Economist Robert Dan J. Roces said while another rate hike can be effective in stabilizing prices and support the local currency against the dollar, it may slow down economic growth and burden borrowers with higher debt costs. 

“Balancing inflation control and economic growth is a complex task that calls for a multi-faceted approach. In addition to rate hikes, government authorities could consider supply-side policies, fiscal stimulus, and foreign exchange interventions among other measures,” he said in a Viber message.

Mr. Roces said a cautious approach that avoids further monetary tightening could be “more prudent” in dealing with inflation, given the risks to economic growth. 

“The BSP will be very wary of over tightening especially as investment weakness has been very apparent in the latest growth data,” BMI’s Mr. Low said.

The Philippine economy grew by an annual 4.3% in the second quarter, the slowest in over two years. It was weaker than the 6.4% growth in the first quarter.

For the first semester, GDP growth averaged 5.3%.

Gross capital formation dipped by 0.04% in the second quarter, a reversal of the 12.6% growth in the first quarter and 17.2% in the second quarter of 2022.

Third-quarter GDP data will be released on Nov. 9.

“As for rate cuts, we expect it to materialize in the second half of 2024, similar to our projections for the Fed. This means that interest rates will be kept at multi-year highs for a prolonged time,” Mr. Low said.

At its meeting last month, the US Federal Reserve kept its own policy rates unchanged at 5.25-5.5%. — By Keisha B. Ta-asan, Reporter