Profit is the primary factor that drives investors to take their capital to a certain country. Aside from opportunities to generate income, investors also look at a host country’s financial system, which is important particularly for corporations that operate in different countries.
The Philippines, now the growth leader in Asia, has been attracting investors, who see a lot of potential in domestic industries. In addition, the Philippine financial system has proven its resilience in previous global crises, and continues to operate under international standards.
Now is the time to invest in the Philippines, according to President Rodrigo Roa Duterte’s economic team, which has made presentations about the investment climate and business opportunities in the country.
From the monetary authority perspective, the Philippines continues to be in a sweet spot characterized by low and stable inflation and rapid economic growth.
In his presentation, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. says the BSP’s policy direction over the next six years will be “continuity, plus, plus.”
The “continuity” part means the BSP will continue to implement sound monetary policy and effective bank supervision that have resulted in low and stable inflation and a strong and resilient banking system.
The “plus plus” refers to the BSP’s plan to implement ambitious financial sector reforms that will bolster and support equitable economic growth.
Espenilla, who was appointed BSP governor in July this year, noted that since 2009, the BSP has consistently achieved its inflation target, except in 2015-2016 when inflation went below 2% due to unusually low oil prices.
Moreover, as of the second quarter of 2017, the Philippines has posted 74 consecutive quarters of uninterrupted growth (from the first quarter of 1999 to the second quarter of 2017) or a span of 18.5 years, with growth accelerating in recent years.
The BSP chief expects this combination of high growth and low inflation to be sustained moving forward on the back of the economy’s rising productive capacity and prudent conduct of monetary and fiscal policy.
On the external front, the Philippines’s balance of payments (BOP) position is very manageable and can stand resilient against external headwinds. The BSP estimates a moderate BOP deficit of $500 million this year, equivalent to -0.2% of Gross Domestic Product (GDP).
Providing liquidity buffer to the BOP is the country’s gross international reserves, which stood at $81.7 billion as of end-August, equivalent to almost nine months’ worth of imports of goods and services.
At this level, our reserves are also larger than the country’s total outstanding external debt which continues to decline.
The Philippine banking system is now on very sound footing and continues to be a stable anchor for the economy, according to Espenilla, and this is a product of deep and meaningful financial sector reforms that the BSP implemented since the 1997 Asian Financial Crisis.
The reforms include the enactment of a law in 2014 that allows the full entry of foreign banks. This complements the BSP’s other initiatives to further liberalize the industry.
The BSP has lined up more reforms to further strengthen the efficiency and competitiveness of the economy.
These include the fine-tuning of monetary policy operations to make it more market-oriented and to make the BSP even effective in managing domestic liquidity; initiatives that will deepen the local currency bond markets, consistent with the need to fund infrastructure and other big-ticket investments; and issuing regulations enabling digital innovations and financial technology to allow more people, including those in far flung areas, to access financial products and services.
Espenilla assures investors that the Philippines can sustain a high-growth economy, and that the country will remain among the most resilient in the world to external shocks.
For its part, the BSP will stay focused on its core mandates of price stability and financial stability, conducive to sustainable economic growth. It will also continue to adopt ambitious financial market reforms that will expand economic potential, avoid overheating, and lay the foundation for durable economic growth.
From my perspective, the Philippines is one country where the monetary authority is not focused only on monitoring the financial system, but is actively contributing to sustaining economic growth.
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