The head of the Duterte administration’s economic team on Tuesday assured Japanese businessmen that prospects for the Philippine economy remained rosy despite a high inflation environment at the start of the year.
“At the moment, the Philippine economy is experiencing elevated inflation rates. This is due to the inflationary trend normal for a high-growth economy,” Finance Secretary Carlos G. Dominguez III said in a speech during the Philippine Economic Briefing in Tokyo.
“That trend has been exacerbated by a sharp rise in international oil prices and an adjustment in the peso’s exchange rate due to the increases in interest rates in the US,” Dominguez added.
In May, the inflation rate hit an over five-year high of 4.6 percent, mostly blamed by the government on higher prices of fish and seafood, fuel and lubricants, as well as bread and cereals, including rice.
As such, headline inflation averaged 4.1 percent in the first five months, already breaching the government’s 2-4 percent target for the entire year.
Dominguez nonetheless said that economic managers “do not expect the elevated inflation rate to become permanent.”
“Economists assure us that the inflation rate is manageable and it should begin deescalating towards the second half of the year,” Dominguez said.
Overall, the Philippine economy was “building a strong momentum” after the gross domestic product grew by an average of 6.5 percent in the past 10 quarters, the Finance chief said.
The GDP expanded by 6.8 percent in the first quarter, below the 7-8 percent growth target for the full-year 2018, as high inflation mostly tempered consumer spending.
“We hope to achieve a faster rate for the rest of the year to bring us closer to the 7-percent target that we set,” Dominguez said.
As the government plans to borrow $1 billion in yen-denominated samurai bonds in Japan by late July or early August, Dominguez said that the Philippines’ prudent fiscal management program, manageable debt service load as well as more robust revenues augur well for foreign borrowings.
Dominguez said that the government expects “an improvement in our sovereign credit ratings.”
The top three global debt watchers Fitch, Moody’s and S&P all currently rate the Philippines one notch above minimum investment grade.
Dominguez noted that the expected credit ratings upgrades “will further improve our ability to finance the growth well into the medium term,” even as the recent global bond and panda bond issuances already had tight spreads, which the finance chief said “indicate confidence in the fiscal and debt management of the Duterte administration.”
In April, economic managers increased the share of foreign borrowings to the total financing program in the next five years, citing “good” rates being offered by Japan, China and South Korea to finance priority projects and programs.
According to earlier documents, Japan will finance 19 infrastructure projects worth at least P753 billion in support of the Duterte administration’s ambitious “Build, Build, Build” program.