ADDITIONAL INCREASES in interest rates and any change in policy in the United States, as well as China’s slowing growth, can be expected to have “modest” impact on the Philippines compared to other Southeast Asian economies, and will likely be manifested in investments and cross-border lending, the International Monetary Fund (IMF) said.

In a report, the IMF assessed the potential impact of these scenarios, which are considered the biggest external threats to the Philippine economy given the latter’s exposure to both markets.

“The Philippines’ trade and financial exposures to the United States and China are more moderate than the more open ASEAN neighbors, albeit with the role of China rising recently,” the multilateral lender said in a Nov. 10 report, referring to the Association of Southeast Asian Nations.

“Thus, the potential spillovers from policy shifts in the United States and lower growth in China are expected to be more modest in the Philippines, although historically US financial spillovers had a large impact, perhaps reflecting the shallower financial depth,” it added.

“Direct financial spillovers from the United States are significant, mainly through FDI (foreign direct investments) and cross border bank lending, while direct financial links with China are currently limited.”

Expectations of a fresh rate hike from the Fed next month grew stronger following the release of the minutes of its Oct. 31-Nov. 1 meeting, where some policy makers said they expect the need to raise interest rates in the “near term.” Fed officials saw the US economy remaining “poised for strong growth,” confirming expectations of sustained recovery, Reuters said in a report.

IMF noted that the US and China are the some of the biggest markets for Philippine goods and services, as well as major sources of remittances and tourists. The US, in particular, is the biggest source of revenues for business process outsourcing (BPO), “highlighting vulnerability to potential changes in US policies, particularly to the outsourcing sector.”

The BPO sector employs over a million Filipinos and fuels domestic consumption together with remittances from overseas Filipino workers. The Philippines’ BPO sector — initially feared to be a casualty of President Donald Trump’s “protectionist” slant — has yet to feel the repercussion of his avowed intention to bring home outsourced jobs.

The IMF also said a “faster-than-expected” policy tightening in the US could tighten global financial conditions and trigger capital outflows from emerging economies, causing “significant” drag on the latter.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. has said that uncertainty over the pace of monetary policy tightening in the US and other advanced economies would likely trigger “bouts of volatility” in Philippine financial markets, even as monetary authorities are well-armed to weather headwinds. “We are ready to deploy the full array of our monetary policy toolkit in case of changes to deal with possible market volatility, as policy settings evolve and normalize in the US and other advanced economies,” Mr. Espenilla had said in a speech on Tuesday.

The Monetary Board kept key rates unchanged in its Nov. 9 meeting in the face of within-target inflation and firm domestic economic activity. The BSP has constantly said that it does not have to automatically match the Fed’s tightening. — Melissa Luz T. Lopez

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