WB downscales 2022 PH growth forecast as fallout from Ukraine war felt
MANILA, Philippines—President Rodrigo Duterte’s economic managers are bracing for the spillover impact on consumer prices being wrought by the continuing assault on Ukraine by Vladimir Putin, which also led the World Bank to slightly downgrade its 2022 gross domestic product (GDP) growth forecast for the Philippines to 5.7 percent.
“As the pandemic subsides, the Philippine economy is now well on its way to rapid recovery,” Finance Secretary Carlos Dominguez III told Filipino business leaders at Tuesday’s Philippine Economic Briefing. Partly on the back of the Philippine government’s P3-trillion direct response to fight COVID-19 to date, equivalent to 15.6 percent of GDP, Dominguez said the economy would grow by 7 to 9 percent this year.
“Our optimism is, of course, tempered by the uncertainties introduced by the Ukraine conflict. We face a situation that will almost certainly raise inflation levels in all countries. This will be due primarily to the spike in oil and commodity prices,” Dominguez said.
“Rest assured, the Duterte administration is closely monitoring the developments and it is doing its utmost to mitigate the impact of oil and food price increases on our people,” he said.
“This is being done through cash grants for the bottom 50-percent of the population as well as fuel subsidy and fuel discount programs for the transportation sector and small farmers and fisherfolk,” Dominguez added.
The government plans to distribute a total of P47.5 billion in financial assistance to those badly hit by expensive fuel—P41.4 billion in unconditional cash transfers worth P500 a month per household, covering six months; P5 billion in fuel subsidies to public utility vehicle (PUV) drivers; and P1.1 billion in fuel discounts to agricultural producers.
At a press conference, Dominguez conceded that Russia’s invasion of Ukraine “will be a drag to our economy” even as it indirectly impacted on the Philippines due to its low trade and investment exposure to both warring countries.
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the economic outlook for the Philippines remained optimistic amid risks mainly from the Russia-Ukraine conflict, such that an exit from the regulatory regime tailored to the pandemic may not come until the second semester this year at the earliest.
World Bank East Asia and Pacific chief economist Aaditya Mattoo told a press briefing also on Tuesday that the Washington-based multilateral lender cut its 2022 GDP growth forecast for the Philippines from 5.8 percent previously, remaining below the government’s target range.
Despite an already “quite conservative” economic growth for the Philippines last December, Mattoo said “the reason for the downgrade is primarily the war in Ukraine.”
“We believe that this is a shock for the whole world and it is going to affect the Philippines also because it’s a net importer of fuel. It is a country which is exposed to the world in terms of both exports and finance, but these vulnerabilities in the Philippines are less than in other countries. It is not as dependent on exports like Vietnam, and it is not as dependent on external financing like Malaysia,” Mattoo explained.
“The Philippines is unusual — it does not regulate prices and it has been relatively successful in providing direct support to its people in terms of dealing with these price increases,” Mattoo said.
“But like all other countries in the region, the Philippines, too, has vulnerabilities. Energy imports account for more than 3 percent of GDP. Food imports are less so, about half-a-percent of GDP. Metal imports also matter for the Philippines as it is also part of global value chains. These commodity price shocks will hit the Philippines,” Mattoo added.
“[The Philippines] was beginning to open up because of the success in containing COVID-19. It’s unfortunate that its opening up is coinciding with new global uncertainties that might continue to inhibit tourism,” Mattoo said.
For Mattoo, the Philippines was “an example of how the shocks are changing the trade landscape.”
“The Philippines has relied on tourism, but it also has the capacity to provide software and other backup services to the rest of the world. Digitization is increasing the scope for more sophisticated services to be delivered all over the world,” Mattoo said.
“One structural shift which will be extremely plausible in the Philippines is to try and shift resources away from sectors like tourism, towards these digitally delivered services and exploit the tremendous potential capacity it has to grow through the delivery of these services,” Mattoo added.
“But that will require investments in education to remedy the scars created by the pandemic, because in the Philippines schools were closed for a very long time. And at the same time to invest in broadband infrastructure, which is necessary to deliver these services,” Mattoo said.
“And finally to develop the regulatory mechanisms, privacy law and other things which strike an appropriate balance between domestic needs and foreign regulatory requirements,” Mattoo added.
For Diokno, the Philippine economic outlook rests on the implementation of the P5.02-trillion 2022 national budget, continued implementation of the “Build, Build, Build” infrastructure program, implementation of the Corporate Recovery and Tax Incentives for Enterprises (Create) Act, and adoption of the 10-Point Policy Agenda to Accelerate and Sustain Economic Recovery from the Pandemic as spelled out in Executive Order (EO) No. 166. The BSP chief added that the recent passage of the amended Public Services Act will drive economic growth.
“This economic outlook is supported in part by the BSP’s efforts toward financial digitalization and inclusion, and promotion of a stable inflation and financial environment conducive to economic growth,” Diokno said.
Considering these, Diokno said the BSP was still looking at the second half of the year for its normalization strategy, referring to an exit from an accommodative policy regime that is intended to shore up the economy at a time of pandemic.
The so-called “pandexit” strategy involves recalibration of monetary operations, unwinding of liquidity provision, reducing monetary accommodation, and building buffers in preparation for future crises.
“The past six years tested our resilience as a nation. But we are emerging better and stronger because we opted to build windmills that have harnessed the winds of opportunity,” Diokno said.
To pave the way for a post-pandemic economic recovery, the BSP is pushing for the institutionalization of policy reforms to address supply constraints of major commodities; enactment of the proposed Financial Consumer Protection Act and promotion of digital payments under the Digital Payments Act.
