The Bangko Sentral ng Pilipinas (BSP) on Thursday urged the country to be on guard against potential threats against the Philippine economy as financial markets at home and around the world started the new year on a volatile note.
Speaking before members of the Rotary Club of Manila in Makati City, BSP Governor Amando M. Tetangco said he was expecting 2016 to be both “riveting and challenging” based on current developments, including a sharp 14-percent decline so far this week in the equities market of China, the world’s second largest economy, that had sent ripples around the world.
In 2016, both external and domestic developments will compel us to remain watchful of threats to stability,” the central bank chief said, airing his most cautious tone in the 11 years he has given annual forecasts before the Rotary forum. “We see continued economic challenges for the Philippines moving forward.”
“If the first seven days of this year are any indication, 2016 will be far from boring,” he said, adding that this week saw the worst new year’s opening day in history for the Chinese equities market, aggravated by geopolitical concerns in the Middle East.
Tetangco said policymakers would face challenges in controlling the pace of price increases this year, in part due to the effects on food prices of the worst El Niño weather phenomenon on record.
He also stressed that ensuring that the liquidity in the local financial system was channeled to productive uses— keeping it in check to prevent asset price bubbles while ensuring there would be enough so as not to slow down economic growth— would be a tough balancing act for the central bank.
In particular, the central bank chief zeroed in on the need to channel more funds into improving the country’s weak infrastructure like roadways, airports and seaports, all of which are needed to facilitate the entry of more foreign investments.
“The Philippines has the lowest level of infrastructure spending-to-GDP ratio in the region,” he said, adding that the government was exerting effort to raise this level to an equivalent of 5 percent of gross domestic product this year.
Finally, Tetangco pointed out that the government is also faced with the challenge of ensuring that the citizens in the lower socioeconomic strata would feel the benefits of growth through financial inclusion — something that has so far eluded the country on the scale needed to significantly alleviate poverty.
“Only 25 percent of Filipino adults have savings accounts, 32 percent used to save and only 43 percent have some form of savings,” he said. “Of those who save, only 33 percent keep their money in banks while the rest keep their savings at home. And about 47 percent of adults rely on informal lenders for loans.”
Tetangco assured the public, however, that the central bank had the wherewithal to fend off external threats to the local economy.
“Among others, our economy’s non-inflationary growth, sound banking system, and favorable external liquidity position give the BSP enough flexibility to respond to evolving domestic and global conditions,” he said.