Philippines Resilient Against External Risks
Purisima: We are less vulnerable, but we will not be complacent
11 May 2015– The Philippines today stands to be one of the most resilient countries in the region, with ample safeguards against shocks in a volatile global environment. As many anticipate the impending normalization of interest rate conditions planned by the United States Federal Reserve, the Philippines’ high level of resiliency against external risks is expected to be a boon to the country’s fiscal footing.
Finance Secretary Cesar V. Purisima said, “We have built ample buffers that strongly position the Philippines to weather changes in the external environment. We are less vulnerable to external risks, but we will never be complacent. We continue with our relentless pursuit of meaningful reforms to accelerate fiscal sustainability, strengthen governance, and boost our competitiveness. We refuse to be Asia’s sick man once again: expect that the virtuous cycle we are enjoying will be leveraged to forge brighter paths ahead.”
Taking advantage of strong domestic liquidity, the Philippines’ increased reliance on peso funding also bolsters debt sustainability. As a consequence, vulnerability to foreign exchange risk is tempered with the country’s heavy bias towards local currency. Moreover, interest payments have been locked at low rates with the country’s debt portfolio predominantly in fixed terms.
The external debt of the national government has gone down to 15% of GDP, or 0.5x of FX reserves—one of the lowest levels in Asia. Moreover, only 4% of external debt will be maturing within a year, reflecting an average residual maturity of over 11 years. Recent improvements in domestic liquidity conditions has allowed increased reliance on peso funding, tempering vulnerabilities to foreign exchange risk and bolstering debt sustainability. Interest rate exposure is also limited by a portfolio composition that is 98% on fixed-interest terms.
The Philippines also benefits from sustained current account surpluses that began in 2003. Forex reserves have grown and remained at formidable levels behind the strength of the business process outsourcing industry and steady remittance flows. Meanwhile, an improved export manufacturing sector have narrowed the trade deficit further easing balance of payment pressures.
On the domestic front, the Philippines’ buoyant economy provides a solid line of defense against events and actions that increase external risks. The country’s fiscal position remains formidable with 2014 deficit only amounting to 0.6% of GDP following continued positive trajectories in revenue collections, leaving ample resources to accelerate productive spending particularly for infrastructure to get greater traction.
Purisima stressed, “We are confident that our consistent and measured approach at buttressing against global volatility will reap great returns each time the country confronts global economic forces, ensuring that the Philippines stands on solid footing. We will continue taking actions to confront external headwinds and stay the course on our path of sustained, higher and inclusive growth. We remain committed to our focus on fortifying economic fundamentals we have built over the past 5 years.”
Purisima noted that the Bangko Sentral ng Pilipinas has been particularly proactive in ensuring expectations remain well-anchored and that inflation is maintained within the target band of 2-4%for 2015 to 2016. Liquidity is well-managed to support favorable alignment of inflation and broad-based growth.
“Following improvements in our investment ratings, we continue to diversify our investor base. Investor sentiments reflect increasing demand for exposure for Philippine debt papers as seen in this January’s successful $2 billion issuance amid global financial volatility,” Purisima noted.
“We expect fiscal headroom to be further scaled-up with growth enhancing revenue reforms to support long-term growth. We continue to expand our fiscal space to accommodate public investments in infrastructure and social services, and to provide social safety nets for the vulnerable. To expand our tax base, as well as to create a more efficient and equitable tax structure, we will work closely with Congress for the passage of key legislation to further boost our economic standing,” Purisima added.
Copyright © 2021 Department of Finance