Malacañang, along with Congress, opened the week with an announcement to temporarily suspend an oil tax hike set in January, based on estimations that the average price of Dubai crude oil prices (Asia’s benchmark) will stay above the $80 per barrel threshold set by the TRAIN law. Finance Department officials said this should help anchor inflation expectations and prevent hoarders from taking advantage of soaring oil prices.
To mitigate the potential P41 billion in lost revenue this could entail, the government committed to cutting spending on non-infrastructure projects. “We are going to take the necessary action not to increase our deficit,” Finance Secretary Carlos G. Dominguez III said.
Updated estimations, however, suggest that Dubai crude oil may close the year below the $80 threshold. The Department of Finance issued a bulletin Wednesday saying that while this may ease pressure to suspend the oil tax hike, trade war uncertainties, US sanctions on Iran, and declining Venezuela production have made the global oil market “too volatile” to predict.
Meanwhile, the Development Budget Coordination Committee (DBCC) slashed economic growth and fiscal goals, while raising inflation forecasts in the face of tighter credit conditions, rising oil prices and a worsening Sino-US trade row. “We have tempered our optimism with prudence and good judgement in terms of the reality,”Socioeconomic Planning Secretary Ernesto M. Pernia said.
But in the midst of a weakening peso and global market volatility, local banks are on steady footing, says S&P Global Ratings. The firm attributes the peso devaluation to a ramp-up of imports in line with the government’s infrastructure plans. “This has a limited impact on the country’s banking system, which is heavily domestic focused and has a limited foreign exchange position,” S&P reported.