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Natural disaster damage at P374B in 2006-2015

THE total cost of damage arising from by “major natural extreme events and disasters” was estimated at P374.199 billion in the 10 years to 2015, the Philippine Statistics Authority (PSA) said.

The agency gave a separate estimate for economic losses due to natural and human-induced disasters of P139.748 billion, with natural disasters accounting for P132.910 billion of the total.

The data were reported in the PSA’s 2016 edition of the Compendium of Philippine Environment Statistics (CPES)

According to the PSA, economic losses include “damage to buildings and transportation networks, loss of revenue for businesses, and loss of crops, among other material indicators.”

Across the 10-year reference period, 2009 was the worst for economic losses due to natural disasters at P45.084 billion largely due to tropical cyclones (P43.423 billion).

In that year, economic losses in infrastructure were estimated at P30.711 billion, followed by agriculture (P13.354 billion) and private property/communication (P1.018 billion).

Meanwhile, 2013 was the worst year for man-made disasters at P3.614 billion, with armed conflict accounting for P3.088 billion, fire (P524.6 million) and fishkill (P1.2 million).

The CPES’ P374.199 billion estimate for damage from “major natural extreme events and disasters” includes damage to  agriculture worth P225.626 billion, infrastructure P81.974 billion and private property P66.598 billion.

The top years for such losses were 2013 (P106.666 billion), 2014 (P53.526 billion), 2012 (P44.948 billion) and 2009 (P44.438 billion).

Natural disasters in 2013 include, one major earthquake, two tropical depressions, six tropical storms, and three typhoons which included typhoon Yolanda (International name: Haiyan) in November of that year which killed 6,300 and affected 3.42 million families while causing P95.483 billion worth of damage.

Other destructive weather events include typhoon Pablo in 2012 (P43.164 billion), typhoon Glenda in 2014 (P38.617 billion); typhoon Pepeng in 2009 (P27.215 billion); typhoon Pedring in 2011 (P15.553 billion); typhoon Lando in 2015 (P14.392 billion); typhoon Frank in 2008 (13.338 billion); the July 2015-2016 El Niño (P12.834 billion); typhoon Juan in 2010 (P12.010 billion) and tropical storm Ondoy in 2009 (P10.796 billion).

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, called these figures “staggering.”

“They run up to billions of pesos in losses. It’s really difficult because the usual victim is the agriculture sector and its stakeholders.”

He said the high economic costs can be attributed to the higher frequency of natural disasters compared to years before.

“There are many empirical studies that link the frequency of weather disturbances, in particular, with the increasing temperature,” he said.

However, he cautioned that estimating losses is “quite tricky because some natural disasters are observed to be coming from man-made causes.”

“However, I maintain with my initial observation that the frequency of natural disasters has been higher lately…,” he added.

Mr. Asuncion said much of the infrastructure and property damage suggests the weather events hit “more densely populated areas.”

The biennial CPES is a compilation of environment statistics collected from various government agencies. — Leo Jaymar G. Uy and Lourdes O. Pilar

Single window system for trade passes initial tests

THE Department of Finance (DoF) said that the initial linking of the Philippines’ trade single window system with its Southeast Asian neighbors was “successful,” adding that it has obtained buy-in from nearly all agencies on joining the trade facilitation platform.

Finance Undersecretary Gil S. Beltran said however that the development and testing of the system — the Association of Southeast Asian Nations Single Window (ASW), will continue.

“Although there were some gaps in the responses between the two systems, the initial testing on the ASW connection with Indonesia was successful,” Mr. Beltran was quoted as saying in a statement e-mailed to journalists yesterday.

Mr. Beltran said the ASW’s interconnection tests will run until May with Cambodia and Brunei. 

The ASW is a regional initiative that aims to speed up cargo clearances and promote economic integration by enabling the electronic exchange of border documents within the 10-member regional bloc.

Indonesia, Malaysia, Singapore and Thailand are already using the ASW to exchange information on customs clearances.

The Philippine National Single Window (NSW) — also known as TradeNet — was launched in December by the DoF and the Department of Information and Communications Technology, which is expected to minimize the costs of doing business and cut the processing time for the issuance of import and export permits.

So far, 65 of a total of 76 agencies involved in trade processes have adopted the online platform, the DoF said.

The Finance department had initially linked 16 government agencies when the platform was launched.

Mr. Beltran said that the Bureau of Customs (BoC) is set to identify five exporters who will pilot test TradeNet this month, while a team will do a demonstration on the Integrated Importer Accreditation Module, which aims to simplify the accreditation process for importers.

The module will later link accreditation records of regulatory agencies to the Customs bureau’s records, “to form a full importer profile.”

TradeNet initially covers import and export permits for rice, sugar, used motor vehicles,  chemicals (toluene), frozen meat, medicine for humans, animals or fish and  cured tobacco.

The agencies involved in issuing permits for these products include the Bureau of Animal Industry (BAI), National Tobacco Administration (NTA), Fair Trade and Enforcement Bureau (FTEB), National Food Authority (NFA), Bureau of Plant Industry (BPI), Food and Drug Administration (FDA), National Meat Inspection Service (NMIS), the Bureau of Internal Revenue, and the BoC. — Elijah Joseph C. Tubayan

ERC turmoil to disrupt power plant financing, construction — Meralco

MANILA ELECTRIC Co. (Meralco) has warned about the cost on the distribution utility should the delay in the approval of its power supply agreements (PSAs) stretch beyond what is acceptable to its contractors.

“It will affect our timetable. It will affect the cost if the delay is protracted because the EPC (engineering, procurement, construction) contractor cannot hold on to the contract price for far too long,” Meralco Chairman Manuel V. Pangilinan told reporters.

Asked about how long Meralco can hold on to its previously agreed terms with its contractors, he said: “A few more months, I guess.”

“Beyond that then we will have to renegotiate the contract and the financing as well because both have been arranged already. I’m referring to Atimonan [One Energy, Inc.],” Mr. Pangilinan said.

Meralco needs approval from the Energy Regulatory Commission (ERC) for its power supply contracts, which its lenders need to ensure that the released funds for the construction of a power plant will bring a steady stream of revenues.

In May 2016, the distribution utility announced that it was seeking approval for seven PSAs for the purchase of 3,551 megawatts (MW), the biggest of which is from a unit of its power generation subsidiary.

The PSAs were based on its long-term load projections as it expects a continuous increase in electricity demand and number of customers, coupled with the impending expiration of contracts from 2019 to 2020.

Meralco’s application has encountered opposition and other issues, including the suspension of the four ERC commissioners and its former chairman for one year.

They were ordered suspended in December last year by the Office of the Ombudsman in connection with the revised implementation date of the competitive selection process (CSP), which it said favored a few power supply contracts.

CSP requires these contracts between power generation companies and distribution utilities to be subjected to price challengers, a process that is aimed at lowering electricity costs.

As a collegial body, the ERC needs the presence of at least three members of the commission to constitute a quorum and the majority vote of two members in a meeting is necessary.

“The main thing about Meralco is our PSAs. We can’t proceed to build one or two of our plants without the PSAs. So I would hope the government proceeds … to reconstitute the ERC,” Mr. Pangilinan said.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls. — Victor V. Saulon

Bill capping system loss charges hurdles Senate on 3rd reading

A BILL that seeks to reduce the cap on the electricity systems losses charged by distribution utilities to consumers was approved on Monday by the Senate on third and final reading.

Sponsored by Senator Sherwin T. Gatchalian, Senate Bill No. 1623, or the proposed “Recoverable Systems Loss Act,” was approved with 16 affirmative votes, zero negative vote and no abstention.

“Aside from forcing distribution utilities to adopt more efficient practices in delivering energy to our offices and homes, this legislation provides real and immediate relief to our countrymen who are struggling to keep up with the ever rising cost of every day goods and services,” said Mr. Gatchalian, who is chairman of the Senate energy committee.

Systems loss refers to the difference between the electric energy delivered to the distribution system and the energy delivered to the end-users and other entities connected to the system.

Mr. Gatchalian said the bill would reduce the cap in systems losses of private electric distribution utilities, which consumers are made to pay for.

From 8.5%, utilities will only be allowed to pass on 5% of system losses. The cap for electric cooperatives will be lowered to 10% from 13%, he said.

He said that with the proposed rates, the bill would contribute to immediate consumer savings, noting that a systems loss rate of 10% for an electric cooperative in Mindanao, for instance, would translate to a rate reduction of P0.1636 per kilowatt-hour. The annual savings at P196.32 is equivalent to seven kilos of rice, he added.

“With 114,590 households served, this would mean an estimated total savings of around P22.50 million per year for one franchise alone,” he said.

Mr. Gatchalian said the bill provides a formula for the computation of system losses, technical losses, and non-technical losses incurred by distribution utilities.

The bill also requires utilities to submit their quarterly systems losses, including their technical and non-technical losses, to the Energy Regulatory Commission (ERC). In turn, the regulator is to review yearly the submitted data to “ensure that only allowable costs within the system loss caps are recovered.”

Mr. Gatchalian said the bill mandates the ERC to implement a performance incentive scheme to encourage system loss reduction. Failure to comply with the caps imposed in the bill will “subject both the ERC and the distribution utilities to administrative penalties.”

He said over the years, Filipinos “have had to suffer the burden of outrageously high electricity costs.”

While Republic Act. 9136 or the “Electric Power Industry Reform Act of 2001” gave the ERC the power to change the cap on the rates passed on by distribution utilities to consumers, these have not been changed for nine years, he said.

“Nine years that private distribution utilities and electric cooperatives have not been incentivized to improve their facilities and operations to reduce system losses… Nine years that consumers have been paying for a greater amount of system losses which could have resulted to savings with a lower cap,” he said.

“This measure is a crucial step toward alleviating this burden and improving the standard of living in the Philippines, and I hope you will support its passage,” he added.

The bill was co-authored by Senators Emmanuel D. Pacquiao, Joseph Victor G. Ejercito and Cynthia A. Villar. It was a consolidation of bills filed earlier by Messrs. Gatchalian, Pacquiao and Ejercito. — Victor V. Saulon

Taxpayers’ prayer on Philippine tax reforms

Dear Heavenly Father,

We praise You, we glorify You, and we thank You for the countless blessings and guidance that You continuously provide us.  In our daily prayers, you probably hear us more often in our roles as parents, as sons or daughters, or as workers.  This time, kindly allow us to come before You in our role as taxpayers.

As taxpayers, we would like to thank You for the recent changes that suggest benefits and hope to us.

Thank You that the individual income tax brackets have finally been adjusted after 20 long years of waiting. The take-home pay and consequently, the purchasing power, of many of us have been augmented. Hopefully, the increase in take-home pay coupled with the government’s promise of other forms of support would be sufficient to counter the increase in prices of commodities due to the imposition of other additional taxes.   

We are likewise grateful that the legislature issued reforms on the refund process on input value-added tax (VAT) related to zero-rated sales. From the previous 120 days of review by the Bureau of Internal Revenue (BIR), the period is now reduced to 90 days. In addition, we are glad that there is no more “deemed-dened” rule, which will now prevent the BIR from not acting on the taxpayer’s application for VAT refund. We trust that the BIR will render sound decisions within the shortened period of review. We are also happy that, the government is setting aside a portion of the government’s VAT collections to back up the VAT refund process.

Thank You that there are also indications that our tax authorities seem to recognize the sentiments of the taxpayers. These could be seen in the recent Revenue Regulations (RR) No. 06-2018 relative to the requirements for deductibility of expenses in relation to withholding taxes, and RR No. 07-2018 relative to the due process requirement in the issuance of a deficiency tax assessment.

Although there are some questions in the minds of the taxpayers on how the BIR would actually implement the above two regulations, at least, we are thankful that the government now realizes that, the rule — saying that despite paying the withholding tax deficiencies during a BIR audit, the related expenses will still be disallowed for income tax purposes — is too onerous and unfair a penalty on the part of the taxpayers. In addition, the revival of the informal conference (infocon) stage prior to the BIR’s issuance of a preliminary assessment notice (PAN) to the taxpayers appears to be promising — that way, before a PAN is issued to the taxpayer, unnecessary and baseless findings will be weeded out in the discussions.  We pray that the infocon stage will be utilized effectively and fairly, in addition to the quality audit procedures that BIR examiners carry out during their audits.

Many taxpayers are also pleased about the recent news reports saying that the legislature is continuing the discussions on the general tax amnesty and estate tax amnesty bills. These bills, if passed into laws, could encourage the taxpayers to avail of the amnesty, and to have a clean slate and start fresh moving forward. Recent publications also mention about the possible reduction, subject to certain conditions, of corporate income tax rates from 30% to 25% in the near future, which is also, generally, a welcome development.

The above positive sides of the Philippine tax reforms offer optimism to the taxpayers and could renew trust in the government.

On the other hand, Heavenly Father, there are several matters in the tax reform efforts that are considered by many as contentious. Some of these relate to issues on tax incentives, recent tax advisories, and draft regulations, among others, that many taxpayers consider to be not within the spirit of the laws intended to be implemented. We hope that You guide all the concerned stakeholders in clarifying and resolving these matters justly. Hopefully, the contentious issues would be immediately settled in order not to derail the steadfast progress that the Philippine tax reforms aim to have.

Nonetheless, we are thankful that, the government is putting significant effort into trying to improve the tax system. We pray that the succeeding developments will continue to be geared towards a new Philippine tax system that will be considered by many, if not by all, as fair and equitable.

Heavenly Father, please continue to guide our lawmakers, policy makers, and us, taxpayers, that we may fulfill all our roles harmoniously and in accordance to Your will. Amen.

Sincerely,

Your children as taxpayers

Olivier D. Aznar is a partner of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

Peso drops on US data

THE PESO slipped on Monday as the dollar strengthened on the back of upbeat US economic data released on Friday.

The local currency ended yesterday’s session at P51.51 against the greenback, dropping six centavos from its P51.45-per-dollar finish on Friday.

The peso opened the session weaker at P51.62 versus the dollar. It plunged to as low as P51.67, while its best showing for the day stood at P51.42 against the greenback.

Dollars traded decreased to $981.1 million from the $1.12 billion recorded in the previous session.

A trader said in an e-mail on Monday said that the market was reeling from upbeat US economic data, which boosted the foreign currency.

“The peso [depreciated yesterday] following the release of stronger-than-expected US non-farm payrolls data and steady US unemployment rate last Friday,” the trader said.

The US Labor Department said on Friday that the country produced additional 200,000 jobs last month after rising 160,000 in December. Meanwhile, the average hourly earnings grew to $26.74 by 0.3% in January, boosting the year-on-year increase in the hourly earnings to 2.9%.

Ruben Carlo O. Asuncion, chief economist of UnionBank of the Philippines, said there seems to be a general preference for the euro and yen over the greenback “because of the recent strengths” of the eurozone and the Japan.

Another trader added that the profit-taking seen intraday tempered the weakness of the peso.

For today, the first trader said the peso might move between P51.20 and P51.60, while the second trader gave a slimmer range of P51.40 to P51.70.

“The peso is expected to rebound ahead of likely upbeat Philippine inflation data for January to be released [today],” the first trader said.

Nearly all of the 14 analysts asked in a BusinessWorld poll late last week said January inflation will likely pick up from December’s 3.3% reading and the 2.7% rate seen in January last year. The poll yielded a 3.5% median headline inflation estimate. — KANV

PSEi plunges to 8,600 level on hawkish Fed fears

By Krista A. M. Montealegre,
National Correspondent

LOCAL STOCKS took a beating at the start of the week, joining a global equity sell-off on fears that the United States Federal Reserve may raise interest rates more aggressively than anticipated.

The Philippine Stock Exchange index (PSEi) plummeted 194.75 points or 2.21% to close at 8,616.

At the height of the sell-off, the bellwether index touched the 8,555.55 level — below the 2017 finish of 8,558.42 that wiped out gains of more than 5.8% for the year — before bargain hunting narrowed its losses.

The all-shares index also plunged 111.40 points or 2.15% to end at 5,070.42.

“Here at home, we were not spared by the onslaught of selling as the healthy employment data implied the rate hikes expected this year may reach four,” Luis A. Limlingan, business development head at Regina Capital Development Corp., said via text.

Asian markets were engulfed in a sea of red on Monday, while US futures added to the huge losses booked last week by falling more than 250 points.

The retreat came after data from the US Labor department showed the economy created a better-than-expected 200,000 jobs in January, fueling bets that inflation will trek higher this year and the Federal Reserve may accelerate increasing borrowing costs to curb the rise.

The ongoing global correction is a turnaround from the blazing start to the year for equities, with the PSEi hitting an all-time high of 9,058.62 on optimism on the impact of the government’s tax reform program.

“We are trading at a very high level already so this is just natural profit taking. Maybe when prices have stabilized, we can retest the highs,” Miko A. Sayo, trader at AP Securities, said in an interview.

All counters finished in negative territory, led by property, which shed 125.21 points or 3.13% to 3,868.68. Industrials declined 319.59 points or 2.68% to 11,572; mining and oil dropped 316.96 points or 2.62% to 11,766.09; holding firms tumbled 220.49 points or 2.44% to 8,787.27; services lost 20.84 points or 1.21% to 1,697.27; and financials slid 19.47 points or 0.87% to 2,204.08.

Value turnover reached P8.51 billion after 1.17 billion shares changed hands, from P7.85 billion in the prior session.

Decliners dominated advancers, 170 to 33, while 38 issues were unchanged.

Foreigners remained in selling territory for the seventh straight session, with net outflows accelerating to P1.95 billion from P978.26 million on Friday.

Momentum indicators show that the correction may push through this week, Regina Capital said, while suggesting that a rebound could arise as technical indicators plunge within oversold ranges.

“The markets are still falling from its peak. We broke the minor support at 8,700 and we are reaching oversold levels so I think we can bounce back in the middle of the week,” AP Securities’ Mr. Sayo said.

Security Bank posts higher net profit in 2017

Security Bank Corp. saw an increase in its net income in 2017 driven by growth across its business segments.

Based on a disclosure to the local bourse on Monday, Security Bank said its net income grew to P10.3 billion in 2017 by 20% compared with the P8.55 billion recorded in 2016.

The profit growth was mainly attributed to the 22% increase in net interest income to P19.4 billion from the P15.9 billion in a comparable year-ago period as well as the 15% growth in its non-interest income to P5.7 billion.

Meanwhile, trading gains were up 36% to P2.4 billion, while service charges, fees and commission income grew 3% to P2.2 billion.

This brought Security Bank’s total revenues to P25.1 billion by 20% in 2017. — Karl Angelo N. Vidal

BPI net income up 1.7% in 2017

Bank of the Philippine Islands (BPI) booked a slightly higher net income in 2017 driven by the growth of its revenues.

In a disclosure to the Philippine Stock Exchange on Monday, the Ayala-led BPI said it recorded a net income of P22.42 billion, up by 1.7% compared with the figures in 2016.

For the fourth quarter, meanwhile, BPI’s net income grew to P5.37 billion by 14.9% from the P4.67 billion posted in a comparable year-ago period. — Karl Angelo N. Vidal

LETTER TO THE EDITOR | Correcting Action for Economic Reforms (AER) on TRAIN 

February 4, 2018

Dear Editor:

Action for Economic Reforms (AER) has risen to the defense of the Duterte administration’s Tax Reform for Acceleration and Inclusion (TRAIN) law. It disparages TRAIN’s critics and their criticisms for being “unfounded, misinformed, oversimplified, or exaggerated,” to cite just the most recent Yellow Pad column of AER ‘Miseducating people is no different from spreading fake news’ (January 29, 2018) that we are compelled to respond to.

The recent column written by Ms. Karla Michelle Yu, research associate of AER, is a spirited defense of TRAIN and smack-down of an “IBON study that is riddled with loopholes” whose “data or the methods are wrong”. We would however like to correct Ms. Yu for her wrong data and facts.

Ms. Yu claims that IBON came out with a study on the inflationary effect of TRAIN on food and transportation and on the price effects of fuel and broadening the VAT base, then proceeds to say how “problematic” and “troublesome” the analysis of IBON is. But the thing is, IBON never came out with such a study which AER can easily fact-check.

While we are tempted to engage Ms. Yu on her supposed counterarguments, we have full confidence that the organizations who did make those claims have a keener sense of how things actually play out in the real world than mathematical simulations with self-serving assumptions.

IBON has always been transparent with the data and methodologies we use in analyzing TRAIN. They are in all the materials we release and have also been shared in Senate hearings, with Representatives of Congress, as well as directly with DOF officials in e-mail exchanges. We have reservations about the DOF’s data that we believe exaggerate TRAIN’s benefits and downplay costs. But we use the data anyway because, even as they stand, they establish TRAIN’s grossly regressive and anti-poor character.

AER can easily check with the DOF data they have that the net effect of TRAIN’s tax measures combined is to reduce the take-home pay of the poorest six deciles and to increase the take-home pay of the highest-income four deciles. TRAIN makes the tax system simpler but it also makes it more regressive and inequitable.

This is a generalization across 23 million Filipino families but it is robust even considering the points raised by Ms. Yu in her column. Yes, the top marginal income tax rate has been raised from 32% to 35% but it is misleading to cite this to give the impression that many wealthy Filipinos will be paying higher income taxes under TRAIN. In the real world, when the actual formula for computing income taxes is applied – which combines a lump sum with the tax rate only applied to the excess above the income tax bracket’s lower bound – it turns out that even someone earning up to P10 million a year will pay less income tax aside from lower estate and donor’s taxes. Only the richest 0.1% or so fraction of families will be liable for higher taxes under TRAIN (assuming they will pay correct taxes).

The excise fuel tax is a “bigger burden” for the rich than the poor only if one deals in absolutes that this is simply a matter of comparing how much the rich pay compared to the poor. But, in the real world, a few pesos taken from someone on the margins of subsistence is a much bigger burden than taking even thousands of pesos from someone much wealthier. This is why poor families welcome peso coins while rich families can spend millions of pesos on a grand debut just like that.

Lastly, the much-hyped cash transfers do off-set the price effects of TRAIN. This smokescreen is precisely why cash transfers take up the overwhelming bulk of the 30% of incremental revenues earmarked for social protection (leaving little for much else). They are only given in 2018, 2019 and 2020 though which are not coincidentally the very years when oil excise taxes keep rising and inflationary pressures keep growing. They are temporary relief while a bigger and bigger tax burden is put in place – and in 2021 the relief is gone but the burden which grew larger remains.

Ms. Yu has singled out IBON for analysis supposedly “riddled with loopholes” and ends with the insinuation that we “miseducate the public for the sake of propaganda”. We understand AER’s coming to the defense of TRAIN. Its long-standing support for the tax measure and close partnership with the DOF to give the tax measure civil society buy-in since at least 2016 is well-covered in media. Still, bringing less emotions into reacting and focusing more on analysis, based on facts, is probably more productive. We are sure that AER has all the relevant facts at hand and we encourage Ms. Yu and her colleagues to look at these more rigorously from the perspective of millions of poor Filipinos.

(Signed)

Sonny Africa
IBON Executive Director

Poll bares rate hike expectation

By Melissa Luz T. Lopez
Senior Reporter

INFLATION likely clocked faster in January as impact of the tax reform law kicked in, coupled with rising global oil prices, prompting several analysts to price in an interest rate hike from the central bank in this week’s policy review.

Nearly all of the 14 analysts asked in a BusinessWorld poll late last week were of the view that inflation will definitely pick up from December’s 3.3% reading and the 2.7% rate seen in January 2017, citing the impact of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN) that took effect last month.

The poll yielded a 3.5% median inflation estimate for January, which is the floor of the 3.5-4% range given by the Bangko Sentral ng Pilipinas (BSP) last week. It also compares to the 3.3% estimate given by the Department of Finance.

Inflation Rate

The Philippine Statistics Authority will report official inflation data tomorrow.

“We are looking at the impact of TRAIN for both food and non-food prices. However, the impact might have been magnified by higher global oil prices, including weather-related price shocks recently,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.

“Although January electricity rates were said to be lower, this would have not been enough to offset TRAIN and other related price level impacts.”

TRAIN imposed an additional P2.50 excise tax per liter of diesel and P3/liter for kerosene, which came at a time of three-year highs for world crude prices. The new law also introduced additional taxes on cars, coal, sugar-sweetened drinks and a host of other items that likely drove up prices of other widely used goods and services.

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., also cited the weaker peso-dollar exchange rate as another factor that stoked inflation as it returned to trading above P51.

The central bank expects full-year inflation to average 3.4% this year, faster than the 3.2% recorded in 2017 but still within the 2-4% target range. BSP Governor Nestor A. Espenilla, Jr. said the central bank will announce revised estimates this week as it prices in TRAIN’s impact.

Mr. Espenilla said the upward trend for inflation remains within expectations, but pointed out that monetary authorities are “carefully assessing” second-round effects of the higher taxes and calibrate policy settings as needed.

Three economists polled expect the BSP to adjust monetary policy settings on Thursday, its first review for 2018.

“With headline CPI inflation expected to rise towards the upper end of the BSP target range during 2018, the BSP Monetary Board is expected to tighten monetary policy by 25bps (basis points) in Q1 2018, most likely at its 8th February meeting, with a second rate hike expected in Q2 2018,” said Rajiv Biswas, chief economist for Asia-Pacific at IHS Markit.

The central bank has kept its monetary policy stance unchanged since September 2014, except for procedural cuts introduced in June 2016 for the shift to an interest rate corridor scheme. Currently, benchmark rates range from 2.5-3.5%.

DBS economist Gundy Cahyadi said a rate hike from the BSP has been long overdue, noting that now is a good time to proceed as the robust domestic economy can withstand higher interest rates.

Others see the central bank setting the stage for a rate hike in its upcoming meetings, either by March or May.

Euben Paracuelles of Nomura Global Research expects the BSP to “set the stage” for a rate hike at its March 22 meeting, but held on to a 20-30% chance for policy adjustments later this week.

ANZ Research economist Eugenia Fabon Victorino said she is waiting to hear a “more hawkish tone” from Mr. Espenilla on Thursday to keep the window open for a rate hike later this year.

“Even with the expected surge in inflation from direct effects of the tax reform, we sense that the central bank remains hesitant to commence tightening its policy. Thus, we still expect the central bank to wait until the inflation numbers in February are locked in before raising its interest rates in March,” Ms. Victorino said.

Analysts also expect a later date for any cuts to bank reserves amid abundant money supply.

“Given the price pressures ahead, the BSP might hold off any immediate reduction in the reserve requirement ratio (RRR) until it gets a better sense of the actual impact of the TRAIN law. Reducing the RRR now is unwise since it could introduce added inflation uncertainty,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

Noelan Arbis of HSBC Global Research, however, said the RRR may be trimmed to 19% to manage liquidity levels, ahead of a 25bp hike in borrowing rates some time next quarter.

SSS looking at overseas investments to help support payments

THE Social Security System (SSS) is looking to invest overseas in order to diversify its asset base and raise additional income to fund pension and benefit payments.

SSS President and Chief Executive Officer Emmanuel F. Dooc said the state-run pension firm is considering foreign investments, similar to steps taken by the Government Service Insurance System (GSIS).

“[A]lthough we are allowed to do foreign investments, right now we have not invested overseas. But based on the experience of GSIS where they reported good returns, we will also consider that,” Mr. Dooc told reporters last week.

“We don’t like to restrict our investments in one basket in the local economy, in domestic investment. So we will definitely study it. That is in our business plan.”

Last month, GSIS President and General Manager Jesus Clint O. Aranas bared plans to invest some $800 million in foreign currency-denominated instruments and hire two external asset managers.

Mr. Dooc said the SSS has likewise reached out to global investment advisers as it seeks to diversify assets.

Apart from salary contributions of workers and their employers, the SSS and GSIS rely on investments and other income to pay the monthly pensions and other benefit claims of its members.

Republic Act No. 8282, or the Philippine Social Security Act of 1997, allows the pension firm to invest portions of its reserve funds — currently worth some P490 billion — in government bonds and securities, shares of stocks, mutual funds and foreign currency deposits, among other financial instruments.

Its charter allows the SSS to allot up to 7.5% of its investible funds in offshore investments.

Amendments proposed by the SSS to Congress include allowing its Social Security Commission to “redistribute” investment ceilings set by the charter for each type of instrument.

Currently, the SSS maintains placements in government-issued debt papers, equities, corporate bonds, real estate, bank deposits and loans to members cumulatively worth P494.717 billion as of end-October last year. This generated P28.908-billion revenues for the pension firm, with an average rate of return at 7.2%, according to latest available data.

Additional income from these investments will help extend the life of the pension fund, which can so far last until 2032 after it paid out a P1,000 across-the-board increase in monthly pensions for retired private sector workers.

The SSS has submitted a request to President Rodrigo R. Duterte to increase the monthly contribution rate for employees to 14% from the current 11% starting April, alongside adjustments for the minimum and maximum salary credits.

If approved, this is estimated to generate around P45 billion from April-December alone, which will be enough to extend the SSS fund life until 2044.

Ideally, the pension fund should last 70 years. — Melissa Luz T. Lopez

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