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The government should provide PHP 5.19 billion in fuel subsidies to the transport, farm and fisheries sectors in the next three months to avert runaway inflation that could hit 6.2% this year amid spiraling global crude prices, the chairman of the House of Representatives Ways and Means Committee said.

In a memo to House Speaker Ferdinand Martin G. Romualdez, Albay Rep. Jose Ma. Clemente S. Salceda also proposed the reduction of the biofuel requirement for gasoline to 5% to reduce prices by as much as PHP 1.03 a liter.

To address the spike in pump prices, he said the government should implement fuel discounts for the transport, farm and fisheries sectors to prevent second-round effects.

“An increase in fuel prices, however, would have second-round effects on inflation. Historically, a PHP 10 increase in fuel prices results in a one-percentage-point increase in overall consumer price index (CPI),” he added.

Inflation quickened for the first time in seven months to 5.3% in August, due to rising fuel and food costs.

If fuel and rice prices continue to increase, Mr. Salceda noted inflation could average 6.2% this year. This would be higher than the Bangko Sentral ng Pilipinas’ 5.6% full-year projection.

Mr. Salceda estimated that PHP 907 million would be needed to provide fuel discounts for 180,000 jeepneys or PHP 5,040 per driver until the end of the year. He also proposed giving a subsidy of PHP 2,800 per hectare for farmers, which would require a PHP 3.36-billion budget; and a subsidy of PHP 420 for a fisherman, which would need a PHP 924-million budget.

Mr. Salceda, who is also chair of the Ways and Means Committee, said the funds for the fuel subsidies could come from value-added tax (VAT) collection from diesel and gasoline, which are projected to be at least PHP 9.3 billion higher than its target.

The Commission on Elections also said it would exempt the distribution of fuel subsidy from the spending ban currently in place for the village and youth council election, Chairman George Erwin M. Garcia told reporters.

At the same time, Mr. Salceda suggested that the National Biofuels Board lower domestic bioethanol additive requirement to 5% from the current 10% under the Biofuels Law.

“The additive makes pump price more expensive because current domestic bioethanol is PHP 84.11 per liter, above the gasoline pump price. Relaxing the requirement could also increase mileage, as bioethanol contains 30% less energy than pure gasoline. The reduction will result in an outright reduction of per liter price by PHP 1.03, and total savings (due to mileage) of PHP 3.05 per liter,” he said.

The lawmaker also proposed a flexible excise tax regime for fuel products.

“Automatic reduction of excise tax by PHP 3 when the 3-month average Means of Platts Singapore (MOPS) index of prices exceeds USD 80 and increases the excise tax by PHP 2 when the same is lower than USD 45,” Mr. Salceda said.

House leaders have proposed the temporary suspension of fuel taxes to address rising pump prices.

However, Mr. Salceda said that suspending fuel excise taxes can only be done if Congress amends the Tax Reform for Acceleration and Inclusion law.

Finance Secretary Benjamin E. Diokno on Tuesday warned that the government may lose up to PHP 37 billion in revenues in the fourth quarter if it suspended collection of VAT and excise tax on petroleum products.

“Removing — or even simply suspending — taxes invariably raises disposable income. Cutting taxes puts more money in everyone’s pocket, enabling them to buy more goods and services, ultimately stimulating the economy,” Terry L. Ridon, convenor of think tank InfraWatch PH, said in a statement. — Beatriz Marie D. Cruz

The Asian Development Bank (ADB) cut its gross domestic product (GDP) growth forecast for the Philippines this year, as elevated inflation dampens consumer spending.

In its latest Development Outlook report, the ADB trimmed its GDP growth outlook to 5.7% this year from the 6% projection it gave in April.

If realized, this would be below the government’s 6-7% target for this year, and slower than the 7.6% GDP expansion in 2022.

“We have downgraded our (Philippine growth) forecast for this year mainly due to the weakening in domestic demand,” ADB Senior Regional Cooperation Officer for Southeast Asia Dulce Zara said in a webinar discussing the report on Wednesday.

She noted last year’s economic performance reflected the reopening of the economy, strong pent-up demand and election-related spending.

“Spending, investments were also high (last year). This year, they have gone down. Another factor is the decline in exports. That’s the reason for the downgrade,” she said.

The Philippine economy expanded by 4.3% in April to June, the slowest growth in over two years, amid weak household consumption and a contraction in government spending.

The ADB’s 2023 growth forecast for the Philippines is still the second fastest among Southeast Asian economies, after Vietnam (5.8%) and ahead of Cambodia (5.3%), Indonesia (5%) and Malaysia (4.5%).

This is also higher than the 4.6% GDP growth projection for Southeast Asia, which was slightly lower than the previous forecast of 4.7%.

“The Philippines’ growth story remains strong despite an expected moderation in 2023. Public investment and private spending fueled by low unemployment rate, sustained increase in remittances from Filipinos overseas, and buoyant services including tourism will support growth,” ADB Philippines Country Director Pavit Ramachandran said in a statement.

For 2024, the ADB expects the Philippines to now be the fastest-growing economy in Southeast Asia with a 6.2% GDP growth projection. This after the ADB downgraded its growth forecast for Vietnam to 6% from 6.8% previously.

“Private consumption and investment will continue to underpin growth. A moderation in inflationary pressures next year bodes well for domestic demand,” the multilateral lender said.

Public expenditure and infrastructure spending are expected to pick up in 2024.

“Moving forward, prospects remain positive for the Philippines. We are looking at investments from the government given its pipeline of infrastructure projects and as well as continued consumer spending, which is the main driver of growth for the Philippines,” Ms. Zara said.

The ADB cited several risks to the Philippine growth outlook such as the expected slowdown in major economies, rising geopolitical tensions, and elevated global commodity prices.

“An intensified and prolonged El Niño, other severe weather disturbances, and a continuation of the Russian invasion of Ukraine could elevate inflationary pressures,” it added.

Elevated inflation
At the same time, ADB maintained its inflation outlook at 6.2% this year and 4% next year, which are both at the higher end of the Bangko Sentral ng Pilipinas’ (BSP) 2-4% annual target range.

Both forecasts are above the BSP’s average inflation projections of 5.6% for this year, and 3.3% for 2024.

At 6.2%, Philippine inflation is projected to be the third-fastest in Southeast Asia this year, following Laos (28%) and Myanmar (14%).

In 2024, the Philippines is still expected to see the third-fastest inflation, after Cambodia and Vietnam.

“Inflation is expected to soften, though the onset of El Niño and elevated global commodity prices may slow the pace of deceleration,” the ADB said.

The multilateral institution said the El Niño weather phenomenon will likely hurt the upcoming harvest, particularly in Southeast Asia.

“This could dent food security and raise inflation in net rice-importing countries, such as Bangladesh, Bhutan, Maldives, Nepal, and the Philippines,” it said.

Ms. Zara said that agriculture production in countries like the Philippines, Indonesia, Myanmar and Thailand will likely be the most impacted by El Niño-induced dry spells and droughts.

“Although inflation has moderated in the first seven months of the year, food inflation remains elevated, above 5% for Laos, the Philippines, Singapore and Malaysia. Reduced agri output both domestic and globally will be harmful for these economies,” she added.

Meanwhile, second-round effects stemming from higher transport fares and wage adjustments may also impact Philippine inflation this year.

“The government is considering extending the period for the reduced tariffs for some food items including rice which are due to expire by December 2023, to keep inflation contained,” the ADB said.

As core inflation eases, the ADB noted the BSP would likely keep policy rates steady before considering cutting them in 2024.

The BSP hiked the key policy rate by 425 basis points (bps) to 6.25% from May 2022 to March 2023.

The Monetary Board will likely hold interest rates steady for a fourth straight meeting on Thursday, as expected by 14 of 17 analysts in a BusinessWorld poll last week.

Slower growth
Meanwhile, economic growth in developing Asia this year will be slightly lower than previously expected as the weakness in China’s property sector and El Niño-related risks cloud regional prospects, the ADB said.

Updating its regional economic outlook, the ADB trimmed its 2023 growth forecast for developing Asia to 4.7% from 4.8% projected in July.

But the growth forecast for next year for the grouping, which consists of 46 economies in the Asia-Pacific and excludes Japan, Australia and New Zealand, was revised slightly upwards to 4.8% from 4.7% previously.

“We see resilient growth in the region really based on pretty strong domestic consumption and investment, and despite reduced external demand, which is a dampener on export-driven growth,” Mr. Park said.

The ADB tempered its growth forecasts for East Asia, South Asia, and Southeast Asia this year, with China and India expected to grow 4.9% and 6.3%, respectively, slightly lower than the July growth projections of 5% and 6.4%.

China’s property crisis “poses a downside risk and could hold back regional growth,” the ADB said in its report.

The Manila-based lender maintained its 2024 growth forecasts for China and India at 4.5% and 6.7% respectively.

While growth has so far been robust and inflation pressures are receding in developing Asia, Mr. Park said governments need to be vigilant against the many challenges the region faces, including food security.

Inflation in developing Asia is forecast to ease to 3.6% this year from 4.4% last year, and continue to slow to 3.5% in 2024, giving central banks policy space, but the ADB said interest rate hiking and easing cycles will vary going forward. — Luisa Maria Jacinta C. Jocson with Reuters

The Philippines balance of payments (BoP) position remained in a deficit for a fifth straight month in August, albeit sharply narrower from a year ago, mainly due to the National Government’s foreign debt payments, the central bank said late on Monday.

Based on data released by the Bangko Sentral ng Pilipinas (BSP), the country’s BoP deficit stood at USD 57 million in August, 90% lower than the USd 572-million gap recorded in the same month a year ago.

Month on month, it rose by 7.5% from the USD 53-million deficit in July.

The August BoP gap was the highest deficit in two months or since the $606-million shortfall seen in June.

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.

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

For the first eight months of the year, the BoP position swung to a USD 2.15-billion surplus from the USD 5.49-billion deficit a year ago.

“Based on preliminary data, this development reflected mainly the improvement in the balance of trade and the sustained net inflows from personal remittances, trade in services, and foreign borrowings by the NG,” the BSP said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the overall BoP was better than last year mainly due to the improvement in the trade balance.

“Last year we saw the trade deficit balloon to all-time lows, but we have seen a bit of an improvement this year,” Mr. Mapa said in an e-mail.

The Philippines’ merchandise trade deficit shrank to a USD 4.2-billion deficit in July amid falling imports and exports. This brought the first-half trade balance to a USD 32.18-billion gap, lower than the USD 35.84-billion shortfall in the comparable year-ago period.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a note said the year-to-date BoP surplus was due to the proceeds of the NG’s foreign currency-denominated borrowings from commercial and multilateral sources this year.

These include global bond issuances and official development assistance (ODA), as well as the continued structural dollar inflows into the country via remittances, business process outsourcing revenues, and tourism receipts.

The central bank said the eight-month BoP position reflects the final gross international reserves (GIR) level of USD 99.6 billion at end-August, slipping by 0.4% from USD 100 billion as of July.

The GIR represents 7.4 months’ worth of imports of goods and payments of services and primary income.

It can also cover up to 5.7 times the country’s short-term external debt based on original maturity and 3.9 times based on residual maturity.

In the coming months, the country’s BoP position will be supported by continued structural dollar inflows and the likely narrower trade deficit, Mr. Ricafort said.

“The proposed USD 2-billion retail bonds to be offered by the National Government in September 2023… as well as the National Government’s planned debut of about USD 1-billion Islamic bonds later in 2023 or early 2024… would also be added to the country’s BoP and GIR in the latter part of the year,” he said.

The government is planning to offer retail dollar bonds this month, as well as Islamic bonds or Sukuk bonds by yearend or early 2024.

“For the rest of the year, we do see the BoP likely flat with any potential worsening of the current account deficit possibly offset by inflows related to the financial account (dollar issuance and return of portfolio investments),” Mr. Mapa added.

Last week, the central bank lowered its balance of payments projection for this year as exports and imports of goods may decline amid weaker global economic conditions.

For this year, the BoP is seen to yield a deficit of USD 127 million (0% of gross domestic product), which is significantly lower than the previous projection of a USD 1.2-billion gap (-0.3% of GDP).

For 2024, the country’s BoP position is projected to swing to a USD1-billion surplus (equivalent to 0.2% of GDP) next year, better than the previous projection of a USD0.5-billion deficit. 

The BSP also projects the current account deficit to reach USD 11.1 billion (-2.5% of GDP), lower than the previous forecast of USD 15.1 billion (-3.4% of GDP).

The central bank expects a narrower current account deficit of USD 10.3 billion (-2.1% of GDP) in 2024 as the country’s trade in goods gap is expected to shrink. — Keisha B. Ta-asan

The Legislative-Executive Development Advisory Council (LEDAC) identified 10 more bills as priority legislation, including the measures seeking to rationalize the fiscal regime for the mining industry and to amend the public procurement system.

In a statement after LEDAC’s third meeting presided by President Ferdinand R. Marcos, Jr., the Palace said the bill amending the Government Procurement Reform Act and the proposed rationalization of the mining fiscal regime were among the 10 bills added to the common legislative agenda.

The new priority bills also include a measure imposing excise tax on single-use plastics and the proposed amendments to the Cooperative Code and Fisheries Code, the Palace said.

The proposed New Government Auditing Code, Open Access in Data Transmission Act, Defense Industry Development Act, and Philippine Maritime Zones Act were also included in the priority agenda.

Proposed amendments to the Right-of-Way Act were also among the LEDAC’s new 10 priority bills.

Senate President Juan Miguel F. Zubiri said the bills were endorsed by Mr. Marcos’ economic team.

“We committed to support this as well,” he said after the LEDAC meeting, based on the Palace statement.

The Palace said Congress is on track to pass the LEDAC’s top 20 priority bills for this year, including measures amending the Bank Deposit Secrecy Law and Anti-Financial Account Scamming Act.

The two bills, which are still pending at the Senate committee level, had been endorsed by the Bangko Sentral ng Pilipinas (BSP), which aims to remove the Philippines from the Financial Action Task Force’s “gray list” by January 2024.

Another bill proposing changes to the military and uniformed personnel (MUP) pension system, which was approved on second reading by the House of Representatives earlier this week, was also on LEDAC’s list.

Bills targeted for Congress approval by December also include the proposed Property Valuation and Assessment Reform Act, E-Governance Act, Magna Carta for Seafarers, Anti-Agricultural Smuggling Act, and a bill seeking to ease the payment of taxes.

The list also includes bills seeking to rightsize the National Government, create a National Employment Action Plan, institutionalize the automatic income classification of local government units, and develop the salt industry.

The proposed Internet Transaction Act, National Scamming Act, National Citizens Service Training Program Act, New Philippine Passport Act, and proposed amendments to the Build-Operate-Transfer law were also included in the list.

House Speaker Ferdinand Martin G. Romualdez said 18 out of the 20 priority bills were already approved by the lower house.

He said the bill reforming the MUP pension system is slated for approval on third and final reading next week, while the proposed Anti-Agricultural Smuggling Act was already approved at the committee level earlier in the day.

“We are on track to approve the two remaining measures before the October recess,” the House leader said in a separate statement. “In sum, the House of Representatives will meet its commitment to approve all 20 priority measures by the end of September, or three months ahead of target.” — Kyle Aristophere T. Atienza