Rising oil prices to erode PH dollar reserves

MANILA, Philippines — The Philippines stands to lose from skyrocketing global oil prices as bigger import costs would slash billions from the stash of dollars in its current account, the Washington-based Institute of International Finance (IIF) said.

“Higher energy prices will hurt several emerging and developing economies that remain heavily dependent on petroleum imports,” the IIF said in a Nov. 1 report.

The “big losers” to high oil prices included Chile, Jordan, Morocco, Pakistan, Thailand, Turkey and Ukraine, the IIF said.

In the case of the Philippines, IIF estimates showed that for every $10 per barrel hike in oil prices, the country’s current account in 2022 would be reduced by $1.76 billion if the current volume of hydrocarbon imports does not change, or a larger $2.66 billion if it imports more next year.

These reductions in the current account would be equivalent to 0.41 percent of gross domestic product (GDP) for current importation levels and 0.62 percent of GDP if the Philippines imports more oil in 2022.

Energy imports to hit $12.5B

The IIF estimated the Philippines’ net petroleum imports as a share of GDP to average over 3 percent during the 2018 to 2022 period.

The value of Philippine energy imports this year were projected to hit $12.5 billion and jump to $15.2 billion next year as the economy recovers. Last year, energy imports fell to $7.4 billion or almost half of the $13.3 billion in 2019 before the pandemic, as stringent lockdowns stopped mobility of people and nonessential goods, slashing oil demand amid the ensuing recession.

Energy imports as a share of GDP declined to 2 percent in 2020 from 3.5 percent in 2019, but are expected to recover to 3.2 percent in 2021 and 3.5 percent in 2022.

Balancing risks

As a share of total imports, energy dropped to 9 percent last year from 2019’s 12.9 percent, but would rise to 12.2 percent this year and 13.6 percent next year, the IIF’s estimates showed.

The Philippines’ current account as a share of GDP swung to a surplus of 3.1 percent worth $11 billion last year as the country saved dollars due to the slump in imports, not only of energy but also consumer goods and capital equipment when many economic activities stopped and tempered private consumption. As imports recover, the IIF estimated the current account to revert to deficits equivalent to 0.5 percent of GDP ($1.9 billion) this year and a higher 1.9 percent ($8.1 billion) next year.

Official dollar reserves were nonetheless expected to balance the risks from expensive oil as these would likely further rise from $98.5 billion last year to $100.3 billion this year and $100.8 billion next year, although imports coverage would decline from 11 months in 2020 to 9.2 months in 2021 and 8.5 months in 2022.

Among those identified to be big losers due to high oil prices, the IIF warned that “wider current account deficits in these countries could lead to difficulty in meeting external financing.”

“The terms of trade loss are particularly sizable for countries with hydrocarbon imports of above 4 percent of GDP, including Thailand, Turkey, Chile, Jordan, Morocco and Lebanon. The sharp increase in oil and natural gas prices has begun to weigh on external balances, raising vulnerabilities for these countries,” the IIF said. “Countries grappling with large current account deficits and particularly those with low official reserves coverage ratio (Turkey, Ukraine and Tunisia) will be mostly vulnerable.”