PH protected against ‘Brexit’ volatility, BSP says

The United Kingdom’s withdrawal from the European Union —the so-called Brexit phenomenon—will only have a minimal effect on the Philippine economy, given the limited amounts of investments that are exchanged between both nations, according to the central bank.

In a press briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno noted that only a small fraction of long-term equity investments that enter the country originate from the United Kingdom.

“For the Philippines, the BSP expects the transition to have a limited direct impact on investments, tourism and trade,” he said over the weekend, explaining that gross placements of foreign direct investment from the United Kingdom represented about 0.7 percent of the Philippines’ total foreign direct investments, while foreign portfolio investments accounted for 29.7 percent for the January-August 2019 period.

Diokno took note of the “rapid progress and minimal disruptions” on post-Brexit negotiations which may lend support to global economic activity and boost market confidence.

However, the emerging view is that while the withdrawal of the United Kingdom from the EU poses no major threat to the EU’s overall economic performance, it may still affect countries with the strongest economic links with the United Kingdom, he said.

As of November 2019, the United Kingdom market represents the Philippines’ 8th biggest tourist market, or only about 2.7 percent of total tourist arrivals.

Meanwhile, overseas Filipino remittances from the United Kingdom held a 5.1-percent share in the total remittances for the January-November 2019 period.

“However, even as the direct exposure of the Philippines to the UK remains relatively small, uncertainty over its implications for the rest of the world could drive volatility in domestic financial markets,” the central bank chief said.

“Nevertheless, the Philippine economy has sufficient buffers to ward off the potential adverse effects of increased external headwinds,” he added. “These buffers include ample gross international reserves, supported by sustained inflows from overseas Filipino remittances, business process outsourcing revenues, as well as tourism receipts.”

Diokno cautioned that uncertainty that may arise from the post-Brexit transition may contribute to short-term spikes in market volatility and risk aversion, which could trigger temporary flight to safe-haven assets. INQ