Archives: Business World Article

The Philippines has secured PHP 65.43 billion worth of loans from Japan to fund big-ticket infrastructure projects such as a four-lane bypass road in Davao City and two major flood control projects in Metro Manila.

The five financing agreements were signed by Finance Secretary Ralph G. Recto and Japan International Cooperation Agency (JICA) Country Chief Representative Baba Takashi during a high-level meeting on Monday, the Department of Finance (DoF) said in a statement.

“We are deeply grateful to the government of Japan for its confidence in our ability to turn these projects into realities. On the part of the Philippine government, we will honor this trust by ensuring that every peso, every yen, and every commitment made today translates into real improvements to the people we serve,” Mr. Recto was quoted as saying.

“Indeed, Japan is not just a friend in words but in action. And today is just one of the many proofs that our friendship is growing stronger each day through concrete efforts.”

The Davao City Bypass Construction Project (III) will receive financing worth JPY 46.34 billion (around PHP 17.67 billion). The project involves the construction of a 45.5-kilometer, four-lane bypass road that aims to improve mobility and facilitate trade in Davao City.

The Pasig-Marikina River Channel Improvement Project Phase IV (II) will get funding worth JPY 45.76 billion (around PHP 17.45 billion). The project will involve measures to control flooding in Metro Manila, such as the construction of dikes, revetments, flood gates, as well as channel dredging.

Japan will also provide JPY 14.48 billion (PHP 5.52 billion) in financing for the Cavite Industrial Area Flood Risk Management Project (II). The project also seeks to reduce flood risks in the lower San Juan River Basin and Maalimango Creek Drainage Area.

The DoF and JICA also signed agreements to provide budget support financing for climate change and health initiatives.

The Climate Change Action Program (Subprogram 2) will receive JPY 35 billion (around PHP 13.35 billion) “to boost climate adaptation, mitigation, and disaster preparedness initiatives.”

On the other hand, the Build Universal Health Care program (Subprogram 2) will receive JPY 30 billion (PHP 11.44 billion) to boost access to healthcare as well as address “gender-specific needs and climate-related health concerns.”

Mr. Recto and National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan led the Philippine delegation to the 15^th Philippines-Japan High-Level Joint Committee Meeting on Infrastructure Development and Economic Cooperation.

The meeting was aimed at accelerating the rollout of Japan-supported projects in the Philippines.

The Japanese delegation was led by Mori Masafumi, special adviser to the Japanese prime minister.

According to the DoF statement, Japan is in discussions with the Philippines to support more infrastructure projects. These include the Central Mindanao High Standard Highway, the second San Juanico Bridge Construction Project, the Flood Control and Drainage Project in Davao City, the Paranaque Spillway Project, the National Public Broadcasting Digital Terrestrial Broadcasting Network Development Project, and the Magat Dam Reconstruction Project.

“The Philippine government likewise presented prospects for future infrastructure development with a specific focus on public-private partnership (PPP) integration and official development assistance (ODA) financing as the country makes its ascent to upper middle-income status,” the DoF said.

Under the World Bank’s classification, the Philippines is still a lower middle-income country but is on track to move to middle-income status by 2026. Once the Philippines reaches upper middle-income status, the country will lose access to ODA loans that are typically long-term and have low interest rates.

According to the latest ODA portfolio review, Japan was the biggest source of loans and grants with $12.07 billion or 32.36% of the $37.29-billion total value in 2023.

At the same time, the DoF said the Japanese government reaffirmed its commitment to support the administration’s “Build Better More” program during the meeting, as well as ways to fast-track the rollout of major projects funded by Japan.

These include the Metro Manila Subway Project (Phase I), the North-South Commuter Railway Project, the Metro Rail Transit Line 3 Rehabilitation Project, the Dalton Pass East Alignment Road Project, and the Metro Manila Priority Bridges Seismic Improvement Project.

Meanwhile, the World Bank has sought input from the NEDA as it prepares for the formulation of their Poverty and Equity Assessment (PEA) report.

Mr. Balisacan met with World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu on March 20.

The World Bank conducted a poverty assessment for the country in 2001 and 2018.

“They now seek to create an updated version in light of the country’s recent economic and poverty developments. The World Bank’s consultation with NEDA is among one of the many efforts to ensure that our inputs will be used as reference in the contents of the PEA,” the NEDA said in a Viber message. — A.R.A. Inosante

 

CENTRAL BANKS in the Asia-Pacific including the Bangko Sentral ng Pilipinas (BSP) are expected to cut rates further this year, S&P Global Ratings said.

“As inflation eases across the region, we expect central banks to cut rates, particularly in the slowing economies,” it said in a recent report.

S&P said it sees the Philippines’ benchmark rate ending at 4.75% this year, which implies 100 basis points (bps) worth of rate cuts in 2025.

The BSP put its easing cycle on hold after it kept interest rates steady at 5.75% last month, citing global trade uncertainties.

The central bank slashed rates by a total of 75 bps in 2024.

Despite the pause, BSP Governor Eli M. Remolona, Jr. said that they are still in easing mode. He said there is space for “a few more” rate cuts this year, signaling the possibility of up to 50 bps or even 75 bps of easing if economic output is much weaker than anticipated.

S&P noted that while growth in the region is slowing, easing inflation “will allow for more rate cuts.”

“Our economics team expects most Asia-Pacific economies will see slower growth in 2025. However, the degree of change varies widely,” it said.

S&P sees Philippine growth averaging 6% this year and 6.2% in 2026. This would be within the government’s 6-8% targets this year and in 2026.

The Philippines’ gross domestic product (GDP) grew by 5.6% in 2024, falling short of the government’s 6-6.5% full-year target.

The BSP earlier said it sees economic growth settling at the lower end of the government’s 6-8% targets from this year until 2026, citing elevated global commodity prices and heightened trade uncertainties.

Meanwhile, the credit rater expects headline inflation to settle at 3.1% this year and 3.2% in 2026. This is well within the BSP’s 2-4% target.

The BSP forecasts inflation to average 3.5% this year and 3.7% next year, accounting for risks.

‘DIFFICULTIES AHEAD’
Meanwhile, the debt watcher said that the rating momentum in the region has “turned negative, flagging difficulties ahead.”

“Positive rating actions outnumbered negative ones substantially following first-half and third-quarter results last year,” it said.

“However, ratings momentum dipped into the negative from the start of the year in the wake of rapid US policy changes.”

In November, S&P Global affirmed its “BBB+” long-term credit rating for the Philippines but raised its outlook to “positive” from “stable” to reflect the economy’s strong growth potential amid improved institutional strength.

“The measures have triggered caution among firms, volatility in the financial markets, and have generally reduced visibility,” it said.

S&P said it expects firms to “tread more carefully through the year.”

“Governments across Asia-Pacific will be standing by to provide support. This raises the possibility of a range of outcomes, including some positive ones, particularly if direct and indirect effects of new US tariffs turn out to be less adverse than feared.”

TARIFF IMPACT
The credit rater also noted the impact of the United States’ tariff war on businesses in the region.

“Most rated firms in the region can manage much of the direct impact of higher US duties given their typically low reliance on that market. However, indirect stresses pose material risks to many sectors.”

“Indirect effects may include a regional or global economic slowdown, or the risk that countries dump cheap goods on markets to offset a loss of access to the US,” it added. 

US President Donald J. Trump is planning to impose reciprocal tariffs on countries that tax US imports in early April.

Since taking office in January, Mr. Trump has imposed a 20% levy on all Chinese imports and a 25% tariff on all steel and aluminum imports.

S&P said that 84% of firms in the region are investment grade, which implies “substantial resilience.” These rated firms are seen as “well positioned to withstand potential tariff effects.”

“However, downgrades have outnumbered upgrades in Asia-Pacific since the start of 2025. This suggests to us that this year may be more challenging than 2024,” it said.

“Ratings concentrations at the lower end of investment grade, and a growing bias toward negative outlooks in some countries and sectors, point to pockets of risks.”

The region’s trade surplus with the US also puts it at risk from restrictive tariffs. After China, Southeast Asia has the second-largest trade surplus at $241 billion.

“Most countries in Asia-Pacific have limited direct exposure to the US as an export market, but variability is high.”

The US is the top destination for Philippine-made goods. In 2024, exports to the US were valued at $12.12 billion or 16.6% of total export sales.

On the other hand, the value of Philippine imports from the US stood at $8.17 billion or 6.4% of total imports in 2024.

While there are limited direct effects, material indirect risks still threaten the region, S&P said.

“Asia-Pacific countries with large export sectors are exposed to the indirect effects of US tariffs, which may trigger a global or regional slowdown,” it said.

“To offset loss of US sales, goods intended for export to the US may be redirected to regional markets at lower prices. This is an important secondary risk that may hit issuer margins and disrupt their sales.” — Luisa Maria Jacinta C. Jocson

The government is reviewing the lower tariffs on imported rice ahead of the local harvest season next month, according to the presidential palace.

“To ensure our farmers are not significantly affected (by lower tariffs), this will be reviewed… Once the National Economic and Development Authority (NEDA) provides a detailed report, it will be forwarded to the Office of the Executive Secretary for submission to the President,” Presidential Communications Office (CO) Undersecretary Clarissa A. Castro said at a Palace briefing in mixed English and Filipino.

Executive Order (EO) No. 62, which took effect in July 2024, lowered import tariffs on rice to 15% from 35% until 2028 to tame inflation.

Under the EO, the rice tariff is subject to a review by the NEDA every four months.

Despite the implementation of lower tariffs, prices of rice have remained elevated in local markets.

According to the Agriculture department’s price monitoring of Metro Manila markets as of March 22, a kilogram of imported special rice was priced around PHP 50 to PHP 60, slightly lower than the PHP 57 to PHP 65 a year ago.

Local well-milled rice is now priced at PHP 38 to PHP 54 per kilo versus PHP 49 to PHP 58 a year ago. Regular milled rice is priced at PHP 32 to PHP 49 per kilo versus PHP 50 a year ago.

The Tariff Commission is scheduled to hold a public hearing on March 28 to tackle the Samahang Industriya ng Agrikultura’s (SINAG) petition seeking to raise the rice tariff back to 35%.

SINAG Executive Director Jayson H. Cainglet said in a Viber message the Tariff Commission would likely raise tariffs due to admissions from agencies such as NEDA and the Bureau of Customs that rice prices remain high despite the lower tariffs.

“We cannot see how the Tariff Commission will decide otherwise,” he said. “And they should explain if they will decide otherwise, on what basis? What data will they use?”

Former Agriculture Secretary William D. Dar said lower tariffs will help bring down prices of rice.

“While imported rice is more than enough, the problem remains having high rice prices in the market… The reason why tariffs were lowered was due to spiraling rice prices and I believe that lowering tariffs will contribute to lower rice prices,” he said in a Viber message.

Mr. Dar said the government should also ramp up efforts against hoarding and price manipulation.

“The key problem now for the government to handle is the alleged hoarding and price manipulation,” Mr. Dar said. “Smuggling is another issue to be handled squarely.”

Former Agriculture Undersecretary Fermin D. Adriano backed a review of the lower tariffs on rice.

“For as long as the decision is based on sound analysis such as considering the impact on producers, consumers and the economy and not on political consideration alone, (a review on rice tariffs) should be done,” he said in a Viber message. — JVDO

The country’s external debt service burden jumped to USD 17.16 billion in 2024, according to preliminary data from the Bangko Sentral ng Pilipinas (BSP).

Central bank data showed debt servicing on external borrowings climbed by 15.6% to USD 17.16 billion last year from USD 14.85 billion in 2023.

Broken down, amortization payments rose by 15.3% to USD 8.94 billion in 2024 from USD 7.76 billion in the previous year.

Meanwhile, interest payments increased by 15.9% year on year to USD 8.22 billion in 2024 from USD 7.1 billion in 2023.

The BSP said that the debt service burden represents principal and interest payments after rescheduling.

This includes principal and interest payments on fixed medium- and long-term credits including International Monetary Fund credits, loans covered by the Paris Club and commercial banks’ rescheduling, and New Money Facilities.

It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service burden data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

Latest data from the BSP showed the Philippines’ outstanding external debt rose by 9.8% to USD 137.63 billion as of end-December 2024 from USD 125.39 billion in the same period in 2023.

This brought the external debt-to-gross domestic product (GDP) ratio to 29.8% at the end of 2024, higher than 28.7% at end-2023.

At end-2024, the external debt service burden as a share of GDP stood at 3.7%, up from 3.4% in the previous year.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the rise in external debt payments was due to the National Government’s need to finance the budget deficit amid relatively higher interest rates.

“Large amounts of borrowings since the pandemic also increased both principal and interest payments, as some of them already started to mature,” he said.

“However, most of the country’s external debts are mostly medium- to long-term, thereby making debt servicing more manageable,” he added.

The NG’s budget deficit narrowed by 0.38% to PHP 1.506 trillion in 2024 from PHP 1.512 trillion in 2023. However, it exceeded the PHP 1.48-trillion deficit ceiling set by the Development Budget Coordination Committee.

“Going forward, future external borrowings would be a function of budget deficit performance in the coming months amid tax and other fiscal reform measures to help narrow the budget deficit,” Mr. Ricafort said.

Further policy easing by the BSP could also help ease interest payments, he added.

From this year to 2027, the NG plans to source at least 80% of its borrowing program from domestic sources, and 20% from foreign lenders. The government previously adopted a 75:25 borrowing mix. — Luisa Maria Jacinta C. Jocson

The National Government’s (NG) gross borrowings inched up in January amid a rise in domestic debt, the Bureau of the Treasury (BTr) said.

Data from the BTr showed that the total gross borrowings in the first month of 2025 rose by 4.92% to PHP 213.14 billion from PHP 203.15 billion a year prior.

Domestic debt accounted for the bulk or 71.41% of total gross borrowings for the month.

In January, gross domestic borrowings stood at PHP 152.2 billion, up 7.56% from PHP 141.51 billion in the same month in 2024.

This consisted of fixed-rate Treasury bonds amounting to PHP 140 billion and Treasury bills worth PHP 12.2 billion.

On the other hand, gross external debt slipped by 1.14% to PHP 60.94 billion in January from PHP 61.65 billion in the same month last year.

Broken down, program loans stood at PHP 56.29 billion and project loans were at PHP 4.65 billion.

“Primarily to finance the budget deficit, as some of the borrowings by the NG may also be front-loaded, just like the USD 3.29-billion global bond sale amid market volatility brought about by [Donald J.] Trump’s tariffs/protectionist policies,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

In January, the BTr said the Philippines raised USD 3.29 billion from the sale of the US dollar and euro-denominated bonds.

For 2025, the government set the financing program at PHP 2.545 trillion, where 80% will come from local lenders and 20% will be sourced from foreign sources.

Mr. Ricafort said future NG borrowings supported by fiscal reform measures could help to narrow the budget deficit, while rate cuts from the US Federal Reserve and the Bangko Sentral ng Pilipinas may ease interest payments. — Aubrey Rose A. Inosante

The Bangko  ng Pilipinas (BSP) could cut rates next month, its top official said, noting the possibility of up to 75 basis points (bps) worth of easing for the entire year if economic output weakens further.

“We’ve been on an easing cycle for a while now. We just took a pause,” BSP Governor Eli M. Remolona, Jr. told Bloomberg in a televised interview with Haslinda Amin on Wednesday.

He said there was a higher likelihood that the Monetary Board will deliver a rate cut at its policy review on April 10, especially if inflation turns out better than expected.

Inflation sharply eased to 2.1% in February, bringing the two-month average to 2.5%. This is well within the central bank’s 2-4% target. 

March inflation data will be released on April 4.

Mr. Remolona also signaled the possibility of up to 50 bps worth of rate cuts this year. However, if economic output is weaker than anticipated, the central bank can deliver up to 75 bps worth of easing.

The Philippines’ gross domestic product (GDP) grew by 5.6% in 2024, falling short of the government’s revised 6-6.5% full-year target.

In its latest monetary policy report, the BSP said it sees economic growth settling at the lower end of the government’s 6-8% targets from this year until 2026, citing elevated global commodity prices and trade uncertainties.

First-quarter GDP data will be released on May 8.

US recession

Meanwhile, the BSP chief said that while he does not see a recession in the United States, a slowdown is “very likely.”

US President Donald J. Trump has pledged to impose broad reciprocal tariffs and additional sector-specific tariffs starting on April 2. 

Markets have been bracing for the potential impacts from inflationary pressures arising from these tariffs, which could prompt the US Federal Reserve to delay its own easing cycle.

The US central bank decided to hold interest rates steady on Wednesday, as expected. Fed Chair Jerome H. Powell said they are in no hurry to make any moves amid economic uncertainties.

Mr. Remolona said the tariff war would “absolutely” have spillover effects on the Philippines.   

“The tariff war is likely to slow down growth for everybody and then raise inflation for everybody. By how much, we don’t really know. But the bigger factor is the uncertainty itself,” he said.

However, this would only have a “modest” hit on the Philippine economy.

“We’ll be hit somewhat because we’re part of a global economy,” Mr. Remolona added.

Room for easing

Meanwhile, the BSP has space to deliver further policy easing amid low inflation, Nomura Global Markets Research said.

“Downside risks to growth, low inflation and high real rates mean there is still room to ease,” Nomura Global Markets Research analysts Sonal Varma and Si Ying Toh said in a report.

Nomura expects the central bank to cut rates by 75 bps this year.

“Disinflation is underway in Asia, with inflation falling within central bank targets across most countries,” it said.

Nomura said it also expects low inflation to be sustained.

“Underlying inflation has moderated by 1.2 percentage point compared to six months ago, and it has the second-highest real policy rate in the region, which suggests still-restrictive policy rates,” Nomura said.

“We expect another 75 bp in policy rate cuts, which would take the policy rate to 5% by end-2025.”

Meanwhile, ANZ Research said it expects the BSP to cut by 50 bps this year.

“For the remainder of 2025, we anticipate 50 bp of additional rate cuts in Indonesia, the Philippines, South Korea and Thailand,” it said in its latest research quarterly report.

“Monetary policy will be less efficacious, in our view. Monetary policy in the region has been a little more independent of the Fed than we had initially assumed,” it added.

Meanwhile, ANZ said it expects GDP to grow by 5.7% this year. This would miss the government’s 6-8% target for 2025.

It noted that household savings in the Asia region have been subpar.

“Savings shortfalls are high in Indonesia and the Philippines, where surveys revealed a drop in the share of income being allocated towards savings or a fall in the share of households with optimal savings.”

“Households are also becoming more circumspect on leverage.  The Philippines is the only exception where household borrowings are still growing at a solid pace. However, considering weak survey outlook on the financial condition of families, this lending cycle is unlikely to sustain in the long term.” — Luisa Maria Jacinta C. Jocson with Bloomberg