Across emerging markets, the Philippines is among the least vulnerable to external risks, although looming protectionism in the US amid a Trump presidency is seen impacting on remittances, Washington-based Institute of International Finance (IIF) said.
In a report titled “Emerging Markets Scorecard: Where are the Vulnerabilities?” the IIF said that among 20 emerging markets, the Philippines alongside Colombia, Czech Republic, Russia and South Korea have “fewer vulnerabilities” to challenges for capital flows.
These five countries “look to have sufficient foreign exchange reserves for precautionary purposes, and their financing needs are low relative to our sample,” the IIF said.
In the case of the Philippines, the borrowing mix earlier programmed by the Duterte administration to finance its programmed wider budget deficit of 3 percent of gross domestic product (GDP) in the next six years was 80-percent local and 20-percent foreign given the relatively low domestic interest rates.
As for forex reserves, these picked up to $81.04 billion in January partly as gold prices recovered at the start of the year, the latest Bangko Sentral ng Pilipinas data showed.
The country’s gross international reserves as of end-January can cover 9.2 months’ worth of imports of goods as well as payments of income and services.
For 2017, the BSP had projected dollar reserves to further rise to $84.7 billion, equivalent to 8.8 months’ worth of imports.
The IIF identified five types of risks to emerging markets: US exposure, financing needs, reserve adequacy, institutional quality and asset valuation.
Across these risks, the IIF said that Argentina, Chile, China, Egypt, Indonesia and Ukraine were the most vulnerable countries as they have “relatively lower foreign exchange reserves for precautionary purposes.”
But in terms of the rising US protectionism under President Trump, the IIF said the volume of cash remittances to the Philippines might be impacted.
“US immigration restrictions will likely pose further headwind to remittance flows, especially [to the] Philippines and Mexico,” the IIF said.
The latest BSP data showed that cash sent home through banks by Filipinos working and living abroad jumped by almost a fifth to $2.22 billion in November last year. The 18.5-percent growth in cash remittances from $1.87 billion in November 2015 was the fastest since July 2008’s 24.6-percent year-on-year increase.
The US was among the the top five sources of remittances a month before Christmas celebrations, which also included Japan, Qatar, Saudi Arabia and the United Arab Emirates.
The BSP had projected cash remittances to grow 4 percent and reach $26.6 billion by end-2016. In 2017, the BSP’s projection was another 4-percent growth to $27.7 billion.
But as a whole, “the adverse impact of trade protectionism will be the greatest in countries with large trade linkages with the US, particularly Mexico, China, South Korea and Malaysia,” according to the IIF.