The subsidies to be given away to sectors hurt by expensive oil will further strain the Philippines’ resources at a time when it is trying to reverse its pandemic-induced higher debt and wider budget deficit, the Institute of International Finance (IIF) said.
As a result of Russia’s invasion of Ukraine, which wrought “considerable recession and stagflation risks” in Europe—a key export destination of Asean-5 and South Korea – these emerging Asian markets would grow slower than initially expected this year, the Washington-based IIF said in an April 20 report.
“However, we are hopeful that, as countries continue to improve control over the pandemic and phase out remaining mobility restrictions, the contribution of services to growth will increase,” the IIF said.
Philippine economic officials had said further reopening of the domestic economy by implementing the lowest pandemic restriction nationwide could offset the war’s spillover impact.
The IIF also flagged rising headline inflation in Philippines, Thailand and Vietnam, amid elevated global food and oil prices.
It noted that in these three countries and Indonesia, food accounted for 20 to 35 percent of the consumer price index (CPI), while oil comprised about a tenth of CPI.
“Asian countries are somewhat less exposed to the food price shock stemming from the Ukraine war due to more rice-focused diets …however, sustained imported inflation could spill over into wages and prices of non-fuel/food items,” the IIF said.
Expensive oil bloating the import bill would also pave the way for a “substantial deterioration” in the current accounts of the Philippines, South Korea, Thailand and Vietnam, the IIF said. The Philippines is a net importer of oil as well as cereals and animal foodstuffs, it noted.