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The Philippine government is looking to issue Islamic bonds, also known as sukuk bonds, by yearend or in the first quarter, National Treasurer Rosalia V. de Leon said.

This would mark the Philippines’ debut in the Islamic bond market, as the government looks to fund its budget deficit.

“As for the timing, we’ve been told that there would have to be a 12-week preparatory lead time that would be needed, so hopefully we can do this before the end of the year or if ever, it would have to slip to the first quarter of 2024,” Ms. De Leon said during the Philippine Economic Briefing in Dubai on Tuesday.

She said that the government is now consulting potential underwriters for the details of the issuance, including its structure, which may be a “hybrid Wakalah, Ijara or Murabaha.”

“In terms of the tenor size, I think the sweet spot would be between the long (tenors of) five and the 10-year (bonds) because this would also be something that would be catering to our small investors and at the same time also to the institutional investors,” she said.

Ms. De Leon did not give the offer size for the planned sukuk bonds. In July, Finance Secretary Benjamin E. Diokno told Bloomberg that the government was eyeing to raise USD 1 billion from the sukuk bond deal.

Bangko Sentral ng Pilipinas (BSP) Assistant Governor Arifa A. Ala said that the sukuk issuance is a “good complement” for the central bank’s efforts to promote Islamic banking in the country.

“Having sukuk bonds being issued by the National Government will send a strong signal that the Philippines is now ready to accept applicants (and) new players in the Islamic banking system,” she added.

Ms. De Leon also reaffirmed the government’s plan to offer US dollar-denominated retail Treasury bonds within the month.

“Even in terms of the tenor, we’re looking at the belly of the curve, so that would be a long five. The other feature is that the tax would be assumed by the government, that means the full coupon would be going to our Filipino investors. That’s something we hope to launch (by) the end of the month,” she added.

The government is planning to offer USD 5 billion worth of bonds this year, the national treasurer said.

“We’re looking at another billion-dollar issuance and maybe this time around, if we make it to the 12-week preparation time, then we’ll be issuing a sukuk structure bond as the remaining issuance from the Republic for the rest of the year,” she added.

Maharlika Fund
Meanwhile, the economic team presented the country’s first sovereign wealth fund, the Maharlika Investment Fund (MIF), to potential investors in Dubai.

“During this visit to Dubai, we’ve been in touch with sovereign wealth funds, but even with infrastructure funds and potential co-investors, looking into joint ventures,” Ms. De Leon said.

“We’ve been able to present a list of our infrastructure flagship projects and how these would complement their own priorities.”

In July, President Ferdinand R. Marcos, Jr. signed into law the Maharlika Investment Fund Act of 2023, which creates the MIF.

The sovereign wealth fund will be managed by the Maharlika Investment Corp. (MIC), which will have authorized capital stock of P500 billion.

“It’s intended to be an additional funding source. We’ll probably graduate to upper middle-income status within two years and will no longer be entitled to concessional loans. This is in preparation for that,’ Mr. Diokno said.

The Finance chief said that the Philippines must ramp up investments in projects that will improve physical and digital connectivity, as well as boost the country’s transition to clean energy. — Luisa Maria Jacinta C. Jocson, Reporter

Philippine gross domestic product (GDP) growth is likely to fall slightly below the government’s target this year, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

“The Philippines’ economic growth is projected to moderate to 5.9% in 2023 due to high base effects and weaker external demand, before edging up to 6.5% in 2024 as external demand recovers,” AMRO Group Head and Principal Economist Runchana Pongsaparn said in a statement on Tuesday.

Mr. Pongsaparn was part of the AMRO team that visited Manila from Aug. 29 to Sept. 8. for its annual consultation.

“Meanwhile, domestic demand is expected to remain robust supported by continued improvement in labor market conditions, lower inflation, robust overseas remittances, and higher government infrastructure spending,” he said.

The think tank’s latest 2023 GDP forecast is lower than the 6.2% it gave in its Regional Economic Outlook Report in July. It also falls below the government’s 6-7% GDP target.

AMRO kept its Philippine growth forecast for 2024 unchanged at 6.5% amid an expected recovery in external demand. This is at the lower end of the government’s 6.5-8% target for next year.

The think tank noted the Philippine economy continued to show strong growth momentum in the first half of 2023. Philippine GDP expanded by a weaker-than-expected 4.3% in the second quarter, bringing the first semester growth to 5.3%.

“Growth was supported by resilient domestic demand with a strong recovery in the labor market despite weaker external demand. Notwithstanding a widening current account deficit, external position remains sound with sufficient international reserve buffer and low external debt,” AMRO said.

AMRO also said Philippine full-year inflation will likely settle at 5.5% this year before slowing further to 3.8% in 2024.

“Despite some moderation, inflationary pressure will likely remain elevated as reflected in the high level of core inflation, due to a positive output gap and the second-round effects induced by increases in the minimum wages and expectations of persistently high inflation,” it added.

Meanwhile, AMRO flagged risks to the Philippines’ growth outlook such as elevated inflation, local supply shocks, an economic slowdown in major trading partners and global financial market volatility.

“The long-term growth potential is largely affected by the scarring effects of the pandemic, the pace of infrastructure development, geopolitical risks, and the economic losses from natural disasters, which are being exacerbated by climate change,” it said.

Among AMRO’s policy recommendations to boost growth include upskilling the workforce, implementation of policies to attract investments and promote exports of goods and services. The government can also improve the Philippines’ competitiveness through infrastructure investment and digitalization, it added.

For the medium and long term, AMRO said “fiscal policy should balance between restoring fiscal buffer and supporting sustainable growth and development.”

The think tank said close coordination between regulators will be crucial in identifying and mitigating financial stability risks that may arise from nonfinancial firms.

“Meanwhile, the authorities should continue to improve the liquidity management framework, develop the bond and repo markets, and continue to expand financial inclusion, to enhance the system’s resilience to shocks and promote market activities,” it added. — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pilipinas (BSP) stands ready to act as necessary to address any risk to inflation, which is still seen to fall within the 2-4% target range by fourth quarter this year, an official said.

BSP Deputy Governor Francisco G. Dakila, Jr. said inflation will fall within the 2-4% target range in the fourth quarter, barring unprecedented supply shocks. 

“Nevertheless, we continue to see that the risks to the inflation outlook have remained tilted towards the upside both for this year and for next year,” he said during the Philippine Economic Briefing in Dubai on Tuesday.

“The BSP remains ready to respond as necessary to any risks that threaten the achievement of the inflation target.”

Inflation accelerated for the first time in seven months in August, as food and transport costs surged. Inflation rose to 5.3% in August, marking the 17^th consecutive month that inflation surpassed the BSP’s 2-4% target.

For the January-to-August period, inflation averaged 6.6%, still above the central bank’s 5.6% full-year forecast.

Mr. Dakila said August inflation was largely due to weather-related disturbances in the country, which drove up the prices of food items such as rice, vegetables, and fish.

“In the absence of further supply shocks, risks continue to lean towards the upside over the near term. Hence, the case for vigilance remains,” he said.

Mr. Dakila said the BSP would like to see inflation go back to within the 2-4% target band before any policy easing is considered due to the need to anchor inflation expectations.

The Monetary Board has paused for a third straight meeting in August, keeping its key policy rate at a near-16 year high 6.25%. From May 2022 to March 2023, the central bank hiked benchmark interest rates by 425 basis points (bps).

“On the BSP’s part, the Monetary Board is set to convene and decide on the policy stance next week, on Sept. 21. As always, our focus remains on ensuring price stability conducive to sustainable and non-inflationary growth,” Mr. Dakila, adding that it will also take into consideration the US Federal Reserve’s next move.

However, Mr. Dakila noted that “the situation is now very different compared from where we were last year, when inflation is still in an upward trajectory.”

“Right now, the focus of the Monetary Board will be on domestic situations. The impact of external factors will be less compared to last year,” he said, adding that the peso has stabilized this year.

The Fed’s next meeting is on Sept. 19 to 20. It hiked borrowing costs by 25 bps at its meeting in July, bringing the Fed funds rate to 5.25-5.5% — its highest level in 22 years. — Keisha B. Ta-asan

The Board of Investments (BOI) has already approved PHP 800 billion worth of investments as of early September, surpassing last year’s level, Trade Secretary Alfredo E. Pascual said.

Mr. Pascual told reporters on Monday that the BOI’s year-to-date investment approvals have already exceeded the PHP 729 billion in investments it greenlit in 2022.

The Trade chief said the BOI appears to be on track to reach its revised PHP 1.5-trillion full-year target.

“I am confident that this target could be achieved. There is even a possibility that it could be surpassed,” he told reporters in mixed English and Filipino.

The BOI raised its target for investment approvals this year by 50% to PHP 1.5 trillion from the original PHP 1 trillion.

Mr. Pascual had also said the Philippines is aiming to be a top-two destination within the Association of Southeast Asian Nations for foreign direct investments.

“But the more immediate and reliable barometer is the entry of investments in the BOI,” he said. — J.I.D. Tabile

Foreign direct investment (FDI) net inflows to the Philippines dropped to the lowest in five months in June, as investors worry over slowing economic growth, elevated inflation, and high interest rates.   

Data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed FDI net inflows declined by 3.9% to USD 484 million in June from USD 503 million in the same month in 2022. This was also 0.6% lower than the USD 487-million FDI net inflows in May.

The June figure was the lowest monthly net inflows of FDI in five months or since USD 465 million in January.

The BSP attributed the decline in FDI net inflows to the decrease in nonresidents’ net investments in equity capital and their reinvestment of earnings, which offset the growth in investments in debt instruments. 

BSP data showed nonresidents’ net investments in equity capital (other than reinvestment of earnings) fell by 11.8 % to USD 111 million in June from USD 126 million in the same month last year. 

Broken down, equity capital placements slipped by 8% to USD 132 million, while withdrawals increased by 20% to USD 21 million.

Reinvestment of earnings also slumped by 26.8% year on year to USD 89 million in June from USD 122 million in the same month in 2022. 

The equity placements were mainly from Japan, the United States, and Singapore. These were invested mostly in manufacturing, real estate, and information and communication industries.

Investments in equity and investment fund shares also declined by 19.2% to USD 200 million in June from USD 248 million in June 2022.

On the other hand, nonresidents’ net investments in debt instruments of local affiliates jumped by 11% to USD 283 million in June from USD 255 million a year ago.

“Concerns about global growth as well as anxiety over slowing growth in the Philippines may have prompted investors to hold back on investing at this time,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

Philippine gross domestic product (GDP) grew by a weaker-than-expected 4.3% in the second quarter, lower than 6.4% a quarter prior and 7.5% in the second quarter of 2022. In the first half, GDP growth averaged 5.3%.

“Equity and reinvestment of earnings were down (in June) indicating a slow pickup for fresh FDI, and less money being plowed back into the economy from existing firms,” Mr. Mapa said. 

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a note said elevated inflation and high borrowing costs continue to weigh on FDIs as these raised the cost of investments.

The central bank maintained its key policy rate at 6.25% at its meeting in June.

For the first half of the year, FDI net inflows dropped by 20.4% to USD 3.9 billion from USD 4.9 billion a year ago.

BSP data showed foreign investments in debt instruments declined by 24.6% year on year to USD 2.71 billion in the January-to-June period from USD 3.59 billion a year prior.

Investments in equity and investment fund shares also slid by 8.8% to USD 1.2 billion during the six-month period.

Net foreign investments in equity capital fell by 7.3% to USD 744 million. Equity capital placements inched up by 3.5% to USD 923 million, while withdrawals doubled to USD 180 million.

Most of these placements were from Japan, Germany, the United States, and Singapore.

Reinvestment of earnings fell by 11.2% to USD 459 million in the six-month period from USD 517 million in the comparable period in 2022. 

“Given heightened uncertainty regarding the global economy, the Philippines may need to convince investors that second-quarter GDP was an aberration. Unless this is done, given our outlook for domestic growth, we could see FDI remain subdued in the coming months,” Mr. Mapa said. 

Economic managers have said GDP needs to grow by 6.6% in the second semester to be able to reach the government’s 6-7% full-year target.

Mr. Ricafort said the free trade agreement (FTA) signed between the Philippines and South Korea earlier this month could boost trade, investments, employment, and overall economic growth.

The Philippine Economic Zone Authority earlier said it expects South Korea to become a top-four source of FDIs into the country, following the recently signed FTA. 

Eventual policy rate cuts, especially in 2024, would also help reduce borrowing costs for investments, Mr. Ricafort added. 

The BSP expects FDI net inflows at USD 9 billion by end-2023 and at USD 11 billion by end-2024. — Keisha B. Ta-asan

ANZ Research raised its inflation forecast for the Philippines this year and next year, as it expects inflation to remain above the central bank’s 2-4% target band in the fourth quarter.

In a note, ANZ Research economist Debalika Sarkar and Chief Economist Sanjay Mathur said Philippine inflation is now projected to average 6% this year from 5.3% previously. The 2024 projection is 3.5% from 3%.   

If realized, 2023 inflation will be higher than the 5.8% average last year and the 5.6% forecast of the Bangko Sentral ng Pilipinas (BSP). It would also mark the second straight year that inflation exceeds the BSP’s 2-4% target band.

“The trajectory underlying our revised forecast implies that inflation will stay above the BSP’s 4% tolerance level even in the fourth quarter of 2023 and may return to the target band in the first quarter of 2024,” ANZ Research said.   

Last week, BSP Governor Eli M. Remolona, Jr. said in an interview with BusinessWorld that inflation may return to the 2-4% target range in the first quarter next year, and not in the fourth quarter of 2023 as previously forecasted.   

August inflation unexpectedly accelerated for the first time in seven months, amid a spike in food and transport costs. Headline inflation quickened to 5.3% in August from 4.7% in July.

For the first eight months of the year, inflation averaged 6.6%. This is still higher than the central bank’s revised 5.6% inflation forecast for this year.

ANZ Research said more than half of August inflation came from the sharp rise in the heavily weighted index for food and nonalcoholic beverages.

“The acceleration in food prices was broad-based, reflecting a supply shock from seasonal typhoon activity and the impact of India’s restriction on rice exports,” it said.   

ANZ noted the acceleration of transport inflation is an “early sign of risks stemming from rising global oil prices.” Transport inflation rose to 0.2% in August from -4.7% in July.

The research firm noted that high oil and food prices may also affect inflation expectations, raising the risk of second-round effects.

Meanwhile, ANZ Research said recently implemented rice price ceilings offer temporary relief for consumers, as it can bring down prices of regular rice and well-milled rice by 34% and 24%, respectively.  

“However, price ceilings can stoke inflationary pressure or create shortages if not supported by complementary measures such as adequate monetary support to retailers, farmgate price regulations and/or a reduction of the rice import tariffs from its current 35%,” it said.   

On Sept. 5, the government began implementing a price ceiling for rice nationwide amid a spike in prices and reports of hoarding by cartels.

“In short, the Philippines’ inflation battle is not yet over. Even if rice price caps alleviate some pressure and second-round effects are not accounted for, full-year 2023 inflation is likely to exceed our (previous) baseline forecast of 5.3%,” ANZ Research said.

Meanwhile, Moody’s Analytics said the biggest worry for Philippine inflation is the El Niño weather phenomenon, which can further impact agricultural produce and keep food prices elevated for longer.   

Higher train fares may also put upward pressure on inflation, it said.

“Despite that, we expect inflation to ease over the coming months and touch the higher bound of BSP’s 2% to 4% target by the end of the year,” Moody’s said.   

“Unless inflation across food and energy proves to be stickier than expected, the central bank is likely to hold rates steady for the rest of the year and cut rates from the first quarter of 2024. We look for inflation to average 5.7% in 2023,” it added.   

For ANZ Research, the reversal in August inflation will weigh on monetary policy.   

“For now, we maintain the view that the BSP will hold the policy rate at 6.25% and that a cut is unlikely even in 2024. Our earlier view was the BSP would be able to start cutting the policy rate from the second quarter of 2024,” it said. — Keisha B. Ta-asan

The government made a full award of the Treasury bills (T-bills) it offered on Monday at mostly lower rates amid strong demand and the peso’s recent recovery against the dollar.

The Bureau of the Treasury (BTr) raised PHP 15 billion as planned via the T-bills it auctioned off on Monday as total bids reached PHP 51.814 billion, or more than thrice the amount on offer.

Broken down, the Treasury made a full PHP 5-billion award of the 91-day T-bills as tenders for the tenor reached PHP 14.715 billion. The three-month paper was quoted at an average rate of 5.575%, 2.3 basis points (bps) above the 5.552% seen last week, with accepted rates ranging from 5.543% to 5.59%.

The government also raised PHP 5 billion as planned from the 182-day securities as bids for the tenor reached PHP 15.983 billion. The average rate for the six-month T-bill was at 5.96%, down by 0.6 bp from 5.966% seen last week, with accepted rates at 5.938% to 5.974%.

Lastly, the BTr borrowed the programmed PHP 5 billion via the 364-day debt papers as demand for the tenor stood at PHP 21.116 billion. The average rate of the one-year T-bill inched down by 0.8 bp to 6.19% from the 6.198% quoted last week. Accepted yields were from 6.15% to 6.2%.

At the secondary market before Monday’s auction, the 91-, 182- and 364-day T-bills were quoted at 5.6553%, 5.9867%, and 6.193%, respectively, based on PHP Bloomberg Valuation Reference Rates data provided by the Treasury.

“The Auction Committee fully awarded bids for Treasury bills (T-bills) at today’s auction. The 91-, 182-, and 364-day T-bills fetched average rates of 5.575%, 5.96% and 6.19%, respectively, all lower than secondary market rates,” the BTr said in a statement on Monday.

“The auction was 3.5 times oversubscribed, attracting PHP 51.8 billion in total tenders. With its decision, the Committee raised the full program of PHP 15 billion for the auction,” it added.

T-bill yields mostly declined as the peso rebounded after it hit a near nine-month low last week, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The lower T-bill rates awarded today moved in line with the recent recovery of the peso,” a trader likewise said in an e-mail.

The peso hit a near nine-month low of PHP 56.94 per dollar on Sept. 5, but has since rebounded.

On Friday, the local unit closed at PHP 56.63 versus the dollar, strengthening by 16 centavos from Thursday’s PHP 56.79 finish, data from the Bankers Association of the Philippines’ website showed.

On Tuesday, it will offer PHP 30 billion in reissued seven-year Treasury bonds (T-bonds) with a remaining life of six years and 10 months.

The BTr wants to raise PHP 180 billion from the domestic market this month or PHP 60 billion via T-bills and PHP 120 billion via T-bonds.

The government borrows from local and foreign sources to help fund its budget deficit, which is capped at 6.1% of gross domestic product this year. — A.M.C. Sy