The Philippines is among emerging markets likely to suffer the most from expensive oil, according to United Kingdom-based think tank Oxford Economics.
“Higher fuel import prices will translate into elevated inflation in Asian and European emerging markets where subsidies are low. Inflation via this channel will be most apparent in the Philippines, Thailand, Poland, India, Hungary and Romania,” Oxford Economics head of global strategy and emerging market research Gabriel Sterne and emerging market economist Lucila Bonilla said in a report.
The Philippines is a net oil importer.
Mainly on the back of surging global prices spilling over locally, the Bangko Sentral ng Pilipinas expects headline inflation to average at 4.3 percent this year, above its 2 to 4 percent target range of manageable price hikes conducive to economic growth.
“Countries such as Thailand, the Philippines, Hungary and Poland are the worst-placed when it comes to energy inflation and fiscal impact,” Oxford Economics said.
Costly subsidies
Oxford Economics noted that the Philippines would spend about 0.2 percent of gross domestic product on subsidies to sectors most badly hit by costly fuel. The government will give away a total of P47.5 billion in financial assistance to the bottom 50 percent income households, public utility vehicle drivers and agricultural producers.
Excess collection from the 12-percent value-added tax (VAT) levied on oil products will partly finance these dole-outs. At an estimated average global oil price of $110 per barrel in 2022, the government had projected to collect an additional P26 billion in VAT this year.
Also, Oxford Economics said that commodity importers like the Philippines, Czechia, Hungary and Malaysia would be “hurt the most” in terms of wider trade-in-goods deficits as expensive oil and other products would bloat their import bills.
The latest Philippine Statistics Authority data showed that the Philippines’ trade deficit last year widened by 75.7 percent to $43.2 billion from $24.6 billion in 2020. Imports grew 31.3 percent to $117.8 billion in 2021, while merchandise exports increased by a slower 14.5 percent to $74.7 billion. Both goods imports and exports last year exceeded their prepandemic 2019 levels.
As of end-February of this year, the trade deficit widened by 47.6 percent to $8.2 billion as the two-month imports growth of 24 percent to $20.5 billion exceeded the 11.9-percent rise in export sales to $12.2 billion.
The yawning trade and current account deficits partly wrought by expensive oil imports were seen further weakening the peso. But Bloomberg reported on Thursday that Finance Secretary Carlos Dominguez III deemed that the peso’s depreciation remained within “manageable limits.”