The Philippines should prove an economic outlier in the third quarter when local output measured as the GDP was seen expanding above 6 percent, no matter the weak export sector performance for the period and the debilitating impact of the dry season on farm output.
In its latest commentary, the Bank of the Philippine Islands (BPI) said the Philippines was seen posting growth averaging 6.3 percent, which will help distinguish the $285-billion economy as a “cut above the rest” in the region.
According to the lender, the accelerated growth in the third quarter may be traced to higher national government spending and in stark contrast to the contraction reported in the same period last year.
“Robust domestic demand and still low borrowing costs will help drive household final consumption expenditure and investments. The services sector is seen to be a stable source of economic growth as several corporates reported decent third quarter earnings,” the BPI said.
“The industrial sector may continue to be a positive influence on the overall GDP print, with construction and manufacturing posting modest gains,” the bank added.
Its analysts, however, warned that growth will continue to feel the negative effects of declining global demand and the weather disruptions represented by El Niño.
“The trade sector has felt the heat from slowing global demand as exports have contracted 6.9 percent year-to-date, and with the July to August trade balance posting a deficit of $1.842 billion, we may see a drag from net exports anew,” the BPI said.
“El Niño is expected to be a damper on an already ailing agricultural sector, although the effects will be difficult to estimate, while the recent spate of bad weather is seen to whittle down agricultural production further,” the bank added.
The Philippine Statistics Authority is scheduled to release the third-quarter growth numbers at the end of the month. The economy grew by 5.3 percent in the first half, significantly lower than target growth of 7 percent to 8 percent.
In an allied development in Hong Kong, Metro Pacific Investments Corp. (MPIC), a company owning businesses as diverse as power and water distribution, to toll roads and hospitals, said it will spend close to P500 billion between now and five years hence. Such expense, however, depends on government approval of its tariff rate adjustment proposal.
“The critical component is, are we getting our tariff increases or not? Can we rely on it? Because the single biggest component of financing these projects is the cash that they generate from year to year,” according to David Nicol.
Under Nicol’s presentation previously showed to the MPIC board, the company will invest P170 billion in power, P106 billion in water, P65 billion in roads, P44 billion in rail and P16 billion hospital.
Securing the projected cashflow of
existing projects is then necessary in order to ensure the continued financing of Metro Pacific’s various future projects, Nicol said.
While the company’s operations may be in key infrastructures, these are also in highly regulated arenas, such as the elevated rail,
toll roads as the North Luzon Expressway (Nlex) and the Maynilad Water Services Inc., the concessionaire of Metro Manila’s west zone.
“We’re a bit hung up at the moment on water and on roads, and indeed on light rail. There is a huge amount of pressure. If that cash flow from operations is not as it should be, what will happen? And we don’t have the infinite ability to fund all of those,” he said.
“So at some point in time if these tariff matters aren’t resolved, it’s going to impact on service quality. We don’t want that to happen and we’re striving to make sure that it does not happen. But eventually, you just see the sheer mathematics of it, you ran out of cash to fund all of these investments. And these are investments that are desperately needed. I don’t think anyone would suggest we don’t need to continue to upgrade the power, water or rail infrastructure in the country,” Nicol said.
Maynilad’s tariff rate adjustment
proposal had been brought before an
arbitration tribunal in Singapore and the case will finally be heared by next year.
Meanwhile, on toll roads, Ramoncito Fernandez, Metro Pacific Tollways Corp. (MPTC) president, said the mediation period for the firm’s Manila-Cavite Expressway (Cavitex) tariff issue expires at the closing of office hours on Friday where pending the resolution of the case, gives the company the right to elevate the issue to the New York arbitration court.
Fernandez said the Toll Regulatory Board (TRB), two weeks ago, has asked the company for an extension of the conciliation period but it asked MPTC to drop the prescribed 90-day conciliation period for another pending tariff adjustment issue involving the Nlex as a concession.
The TRB should have agreed on Friday to the demand for the Cavitex conciliation period extended.
Under the agreement, the Cavitex should have a tariff adjustment every three years while the Nlex tariff is adjusted every two years, with the case dating back to 2012.
“The aggregate increases in Cavitex
ranges from 16 in R1 extension and close to 21 percent in R1. While in Nlex, we are already overdue with a 15-percent tariff increase. We quantify the losses since the start, it is P2.7 billion for Nlex and about P800 million for Cavitex,” Fernandez said.
Nicol said given the existing cashflow threats, the company is considering to sell portions of interest in some of its businesses, particularly toll roads, the hospital and Maynilad.
“We need to sell a little bit of those to generate cash to keep this machine going to keep on funding our project,” he said.
He said that these may include water, hospitals and toll businesses, proceeds of which will also be used for its capital expenditures.