HIGHER oil prices will have a limited impact on the Philippines’ fiscal position in the absence of government fuel subsidies, Nomura Global Markets Research said.

Nomura Global, in a note dated Sept. 29, said the Philippines is one of three economies in Asia that will dodge fiscal consequences as a result of the high price of fuel.

“Only three economies have no fuel subsidies, which means higher oil prices will show up in higher inflation, but should not lead to worsening fiscal finances. These include Singapore, the Philippines and Hong Kong,” it said.

“With no fuel subsidies in place, there is likely to be a larger impact on inflation in the Philippines,” it added.

Consecutive fuel price hikes between July and September have prompted some legislators to propose suspending taxes on fuel products to help bring down pump prices.

This week, oil companies cut pump prices by P2 per liter of gasoline and P0.5 per liter of kerosene. However, they raised the price of diesel by P0.4 per liter.

Inflation likely accelerated in September due to elevated pump prices and electricity rates. A BusinessWorld poll of 17 analysts yielded a median estimate of 5.4% for September inflation, at the low end of the 5.3-6.1% forecast of the Bangko Sentral ng Pilipinas.

If realized, September inflation will exceed the 5.3% reading in August, but will come in below the 6.9% from a year earlier. It would also be the highest reading since the 6.1% reported in June.

Consumer price index (CPI) data are expected to be released on Oct. 5, Thursday.

Nomura Global earlier estimated that a 10% rise in oil price raises headline CPI by 0.2 percentage point (ppt) on average, worsens the current account balance by 0.3 ppt and weighs on economic growth by up to 0.1 ppt.

It sees less of an impact in some countries — about 0.1% of gross domestic product (GDP) for every 10% oil price increase in South Korea, and 0.2% of GDP in India, Indonesia, and Thailand.

“Governments shield consumers via retail price controls, subsidies and tax cuts to ease their cost of living and prevent inflation expectations from becoming unanchored. The resultant fiscal burden is sometimes borne by domestic oil firms, meaning the fiscal impact is reflected both on- and off-budget,” it said.

This time around, Asian governments are more likely to act to limit the pass-through effect of high oil prices to consumers.

“This is because economies have only recently started to show signs of recovery from the period of high food/oil prices following the start of the Russia-Ukraine war, and food price risks are already on the rise owing to El Niño,” Nomura said.

It also noted that consumer demand has been weaker this year compared to 2022, while upcoming elections in India and Indonesia may also mean fuel subsidies will likely continue.

“Overall, Asia’s energy policies are opaque, and the discretionary nature of government fiscal support means there can be temporary periods of cash flow mismatch for oil refineries. In addition, if higher oil prices are accompanied by an increase in gas and coal prices, there would be an increased fiscal burden from electricity as well,” Nomura added. — Keisha B. Ta-asan