DESPITE the country’s aggressive borrowing during the pandemic, the Central Bank Governor remained confident the Philippine economy can still outgrow its debts.
In a plenary session at the Southeast Asia Development Symposium (SEADS), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the country’s current debt is composed of 70 percent local and 30 percent foreign debt.
This year, he said, the economy is expected to grow 7 to 9 percent, outpacing the growth of its debts, of around 2 percent this year.
“The thing to do is to outgrow your debt, and we expect the economy to grow much faster than the growth in our debt. And so that’s the way we will outgrow our debt. As I said, this year we expect to grow at 7 to 9 percent and our debt will not grow that much, maybe 2 percent,” Diokno said.
Diokno expects the economy to perform well this year because the country “did not sit by” and wait for the pandemic to recede before acting on much-needed reforms.
He cited some of these reforms—the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investment Act—which he said will significantly improve the country’s efforts in attracting foreign capital.
The BSP chief also said the country’s reserves remain significant at 10 months worth of imports. Usually, the accepted doctrine is for the economy’s foreign reserves to be equivalent to three months of imports.
The Philippines’s exports, the earnings from sectors such as the Business Process Outsourcing (BPO), and OFW remittances help ensure the country has ample reserves and growth drivers.
“I’ve seen it before in previous crises, whenever there is a crisis in the Philippines we run out of foreign exchange to service our foreign debt. That’s no longer the case,” Diokno said.
“The receipts from the business process outsourcing [firms], our exports are doing fine. And as I mentioned earlier, our foreign direct investments were at its highest. There’s a lot of confidence in the Philippines as an investment destination,” he added.
Diokno stressed that Overseas Filipino remittances were “fairly resilient.” Despite analysts predicting that remittances would decline in double digits due to the pandemic, the decline was only 0.7 percent.
Based on latest BSP data, cash remittances coursed through banks registered a 2.5 percent growth to $2.668 billion in January 2022 from $2.603 billion in the same month last year.
Bigger receipts from land-based and sea-based workers, which rose by 2.9 percent to $2.103 billion and 1.2 percent to $565 million, respectively, were credited with the expansion in cash remittances.
“There is an altruistic side to the Overseas Filipino: remittances. Filipinos abroad tend to send more money to their families here in the Philippines. Whenever there is a problem, they can sense the problem they send more,” Diokno said.
Monetary policy
MEANWHILE, the most important lesson he learned in the pandemic was that monetary policy could not solve everything.
He said the pandemic—the “challenge of the generation”—required greater coordination and collaboration among stakeholders.
He said international cooperation and coordination helped the Philippine response to the pandemic by way of the vaccines.
Diokno thinks if the country was not able to borrow funds from institutions like ADB to purchase vaccines, the Philippines would be worse off now.
Last month, Central Bank’s Financial Stability Report for the Second Semester of 2021 stated that while the improving economic environment is a “welcome turnaround” from the “bleak” figures earlier in the pandemic, Covid’s economic impact on the poor and vulnerable sectors will not be easily reversed, as they were disproportionately hit.
The BSP cited indications that affected households withdrew from their bank deposits to supplement their income in the pandemic. The BSP also said a separate study showed that those living on government aid still had to draw from their savings for their daily expenses.
The Philippine economy grew 7.7 percent in the last three months of the year, beating market expectations.
The fourth quarter growth took the full year gross domestic product (GDP) expansion to 5.6 percent, beating the government’s target for the year.
The BSP cited in its report that in order to prevent the poor from getting poorer in the coming years, stronger accessibility for the vulnerable to public health is key. This includes access to hospital beds, vaccine shots and medical supplies for the poorer sector of the economy.
The Central Bank report also said purchasing power—particularly to the vulnerable—needs to be enhanced.
The BSP also flagged the potential aversion of the economy to face-to-face manual labor, as the country shifts to more technologically advanced processes to avoid interaction.