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What we know about North Korea’s new satellite and claims of Russian aid

MICHA BRANDLI-UNSPLASH

SEOUL — Officials and experts around the world are seeking to independently verify North Korea’s claim this week that it successfully launched its first spy satellite, an effort that South Korea asserts likely included Russian aid.

With the late-night launch on Tuesday, North Korea appears to have overcome the technical problems that sent two previous attempts with its new Chollima-1 rocket plunging into the sea.

IS IT WORKING?
What remains unconfirmed, however, is whether its payload, the reconnaissance satellite Malligyong-1, is operating in orbit, and whether the North received any outside help.

It may take some time to determine whether the satellite is in operational orbit, is sending signals, and what its capabilities are, analysts said.

“To assess the success of this launch, it is crucial not only to determine whether the projectile entered orbit but also to secure the ability to adjust and conduct reconnaissance from that orbit,” said Hong Min, a senior fellow at the Korea Institute for National Unification. “This includes verifying the capability to take pictures with optical cameras and transmitting them appropriately to the satellite center.”

HOW COULD IT BE USED?
North Korea has not shown imagery of the satellite, but photos released by state media from a visit leader Kim Jong Un made this year to a production facility showed small, solar-powered satellites that are most likely similar to the one launched on Tuesday, said Vann Van Diepen, a former US government weapons expert who works with the Stimson Center in Washington.

“It’s likely that this is a relatively small, optical satellite that is going to have relatively low resolution,” he told Reuters. “But even a relatively low-resolution satellite is better than not having a satellite, which is their current situation.”

Such a satellite is unlikely to provide the North with detailed intelligence on specific weapons systems in South Korea, for example, but it would still be useful for identifying things such as large troop movements, Van Diepen added.

To launch a more-capable satellite, North Korea will most likely need to develop a larger rocket, which it appears to be doing, he said.

After the first failed test, South Korea recovered some of the Chollima-1 wreckage — including, for the first time, parts of a satellite, which it said had little military value.

RUSSIAN AID?
South Korea’s spy agency has said North Korea may have overcome technical hurdles with the help of Russia, which in September publicly pledged to help Pyongyang build satellites.

Many experts expressed doubts, however, that Moscow could have provided game-changing assistance in the roughly two months since then.

“It’s much too early for the North Koreans to have integrated any assistance Russia may have agreed to supply,” Jeffrey Lewis, a non-proliferation expert at the Middlebury Institute of International Studies, said in a post on the social media platform X. “Maybe the Russians gave them some advice, but it’s normal for countries to launch and learn.”

Chang Young-keun, a professor at Korea Aerospace University, said it would have been impossible for the North to rebuild a satellite with Russian technology or hardware assistance within that time.

“But Russia could have offered some analysis on previous failures and telemetry data,” he said.

Replacing parts, improving software, system integration, and test runs can’t typically be done quickly, but Russian support could still be valuable in key areas such as improving the satellite’s capabilities or resolving the combustion instability that plagued an earlier launch, said Lee Choon-geun, a rocket expert at South Korea’s Science and Technology Policy Institute.

TIES TO MISSILES?
The United States and its allies called North Korea’s latest satellite tests clear violations of United Nations Security Council resolutions, which prohibit development of technology applicable to North Korea’s ballistic missile programs.

UN resolutions — passed with Russia’s support — also ban any scientific and technical cooperation with North Korea in nuclear science and technology, aerospace and aeronautical engineering and technology, or advanced manufacturing production techniques and methods.

The Chollima-1 seems to be a new design and most likely uses the dual-nozzle liquid-fueled engines developed for Pyongyang’s Hwasong-15 intercontinental ballistic missiles (ICBMs), which has roots in Soviet designs, analysts said.

However, although the space launch vehicle (SLV) probably uses the same RD250-like engines as North Korea’s ICBMs, there are design differences between the two, Lewis said.

“North Korea is no longer shy about testing ICBMs, so no — this really is an SLV,” he said. — Reuters

EU’s Michel, in Kyiv, warns of difficult meeting ahead on accession talks

PRESIDENT.GOV.UA

KYIV — Ukrainian President Volodymyr Zelensky and European Council chief Charles Michel warned on Tuesday that a European Union (EU) meeting next month to decide whether to begin formal accession talks for Kyiv would be difficult.

Mr. Michel, who visited Kyiv on a surprise trip, told a joint news conference with Zelensky and Moldovan President Maia Sandu who hopes accession talks for Moldova will also be approved, that he would work to overcome those challenges.

“For us, the decision in December is a motivational one, the decision that mobilizes. I think this is the decision which will help Ukraine to believe that there is justice,” Mr. Zelensky told reporters.

Mr. Zelensky warned at the news conference that a lack of unity within the EU on the decision to launch formal talks would also raise questions on other issues including vital financial aid for Ukraine as well as sanctions on Russia.

“All these are big challenges for everyone and already not only for Ukraine, but a challenge for preserving the unity of the European Union,” he said.

The decision is due to be considered at a Dec. 14-15 summit.

“It will be a difficult meeting, but I do not intend to give up,” Mr. Michel said, adding that the world needed a strong European Union to ensure stability and prosperity.

Mr. Michel’s visit came as Ukraine marks 10 years since the start of mass protests that toppled a Moscow-backed president and set Kyiv on a resolute pro-Western course.

Russia’s full-scale war in Ukraine is in its 21st month and Ukraine’s efforts to retake nearly a fifth of its territory which is occupied by Moscow has not delivered the breakthrough that many Ukrainians had wanted.

Concerns have also been growing over the sustainability of supplies of billions of dollars of vital Western economic and military assistance.

Mr. Michel praised Ukraine’s progress as “remarkable.” He told reporters he would do everything to persuade all 27 bloc members to support the launch of talks with Ukraine and Moldova.

‘ACT AS ONE VOICE’
At the news conference, Ms. Sandu, the pro-European president of former Soviet Moldova, called on the EU members to unanimously support the opening of EU accession talks.

“We must act with one voice, showing that our collective will is unbreakable,” she told reporters.

“Furthermore, the urgency of these times, marked by war and insecurity, demands that we accelerate our processes.”

Ukraine and Moldova have been conducting a set of reforms to win over members of the EU to further their bids amid signs of an increasingly gloomy outlook from Brussels ahead of the EU summit next month.

Both Mr. Zelensky and Ms. Sandu vowed to continue work on reforms.

Ukraine’s parliament on Tuesday preliminarily approved several key draft laws of anti-corruption legislation that had been recommended by Brussels to beef up Kyiv’s fight against graft. The measures include expanding the staff of the National Anti-Corruption Bureau of Ukraine and strengthening safeguards for the anti-corruption prosecutor.

German Defense Minister Boris Pistorius, also on a trip to Kyiv, announced a new military aid package of 1.3 billion euros ($1.42 billion) that will include four additional IRIS-T air defense systems.

Ukraine, which gained independence from Soviet Moscow in 1991, marks a Day of Dignity and Freedom on Tuesday to commemorate its two pro-Western, pro-democratic revolutions in 2004 and 2014.

The 2014 revolution, which the Kremlin casts as a foreign-sponsored coup, prompted Russian troops to seize and annex the Ukrainian peninsula of Crimea and back a militant insurrection in the east. — Reuters

China gov’t advisers call for steady growth target in 2024, more stimulus

REUTERS

BEIJING – Chinese government advisers will recommend economic growth targets for next year ranging from 4.5% to 5.5% to an annual policymakers’ meeting, as Beijing seeks to create jobs and keep long-term development goals on track.

Five of the seven advisers who spoke with Reuters said they favoured a target of around 5%, matching this year’s goal. One adviser will propose a 4.5% target, while the other suggested a 5.0-5.5% range.

The proposals will be made next month at the ruling Communist Party’s annual Central Economic Work Conference that discusses policy plans and the outlook for the world’s second-largest economy.

Reaching such targets would require Beijing to step up fiscal stimulus, the advisers said, given that this year’s growth has been flattered by last year’s low-base effect of COVID-19 lockdowns.

“We need to adopt expansionary fiscal and monetary policy to stimulate aggregate demand,” Yu Yongding, a government economist who advocates for a growth target of roughly 5%, told Reuters.

“Corporate investment demand will not be strong as the confidence of companies has not recovered, so we need to expand infrastructure investment,” added Yu, who also favours a budget deficit topping 4% of economic output.

The other advisers spoke on condition of anonymity due to the closed-door nature of the discussions. Top leaders are expected to endorse the target at the December meeting, although it will not be announced publicly until China’s annual parliament meeting, usually held in March.

In October, China unveiled a plan to issue 1 trillion yuan ($139 billion) in sovereign bonds by the end of the year, raising the 2023 budget deficit target to 3.8% of gross domestic product (GDP) from the original 3%.

Chinese leaders have pledged to “optimize the structure of central and local government debt”, suggesting the central government has room to spend more as its debt as a share of GDP is just 21%, far lower than 76% for local governments.

“We are stepping up fiscal policy support,” said another adviser, to make the “difficult” 2024 target “achievable.”

Monetary stimulus is expected to play a more limited role as the central bank remains concerned a widening interest rate differential with the West may further weaken the yuan and encourage capital outflows.

“The space for monetary policy could be bigger if we have greater tolerance for exchange rate fluctuations,” said Guan Tao, global chief economist at BOC International and a former official at the State Administration of Foreign Exchange (SAFE).

REFORMS VS STIMULUS

China’s economy grew only 3% in 2022, one of its worst performances in nearly half a century. A Reuters poll in October showed that economists expect it to grow 5.0% in 2023 and 4.5% in 2024, although some have since raised their forecasts.

In 2022, President Xi Jinping laid out a long-term vision of “Chinese-style modernisation” at a key party meeting, with a goal of doubling China’s economy by 2035 that government economists say would require average annual growth of 4.7%.

The stuttering post-COVID recovery has prompted many analysts to call for structural reforms that tilt the drivers of economic growth away from property and infrastructure investment and towards household consumption and market-allocation of resources.

Absent that, these economists warn, China may begin flirting with Japan-style stagnation later this decade.

Beijing has been trying to reduce economic reliance on property, channelling more resources into high-tech manufacturing and green industries, but has struggled to boost consumer and investor sentiment.

Policy insiders believe more fundamental changes, especially a revival of market-oriented reforms, are unlikely due to the political environment, under which the state has increased its control over the economy, including the private sector.

“If there is no consensus on reforms, we will have to use stimulus to drive growth, even though it will not be sustainable,” a third adviser said. — Reuters

Reusable packaging could cut emissions from plastics by up to 69% -study

REUTERS

The widespread adoption of returning and reusing plastic packaging could help to cut greenhouse gas emissions by up to 69%, a study by the Ellen MacArthur Foundation showed on Wednesday.

Such schemes not only lower companies’ emissions but can also drive down costs for some items, according to the study covering over 60 organizations including national governments and consumer goods companies such as Danone, Nestlé , PepsiCo, and Unilever.

The foundation, known for promoting a circular economy, carried out the study in partnership with Systemiq, a UK-based firm focused on sustainable businesses, and environmental consultancy Eunomia.

The study, published at a time when the United Nations’ attempts to deliver the world’s first treaty to control plastic pollution show little sign of progress, called for a systemic change to stem and reverse plastic waste across beverages, personal care, fresh food, and food cupboard sectors.

Under its most ambitious scenario – called System Change – reuse schemes could reduce greenhouse gas emissions by 35% to 69%, water usage by 45% to 70%, and material usage by 45% to 76%, the foundation said.

However, deposit schemes are likely to be key to achieving such targets by driving high return rates, it added.

In the System Change scenario, if consumers received 20 euro cents back when they return packaging to seller, it would lead to significantly lower net costs for returnable beverage and personal care bottles compared with single-use options.

But to reach high return rates and make reuse schemes competitive, shared collection infrastructures, standardized packaging and pooling – the use of shared packaging by several players – are needed, the research showed.

“Now the pressure is on policymakers … and on business leaders in the fast-moving consumer goods sectors to change their practices,” Jean-Pierre Schwetizer, the circular economy manager at the European Environmental Bureau, said in the study. — Reuters

India wants private money for coal-fired plants despite Western opposition

NEW DELHI – India on Tuesday asked private firms to ramp up investments in new coal-fired power plants to meet a dramatic rise in electricity demand and bridge nearly 30-gigawatts of additional requirement by 2030, despite international pressure to stop building such facilities.

India’s power and renewable energy minister R K Singh in New Delhi asked private companies to invest in coal projects and “not miss the growth opportunity,” according to three sources present in the meeting.

The Indian government meeting with private investors comes weeks before the U.N. climate conference, at which France, backed by the United States, plans to seek a halt to private financing for coal-based power plants, according to a Reuters report.

India’s power ministry did not immediately respond to requests for comment.

The private investment share in the Indian power sector started dwindling after 2018, when it was more than, or at par with, government investments. Currently, it stands at 36% of the country’s total installed capacity.

Most of the coal-based capacity under development is being set up by state-owned companies, with Adani Power and JSW Energy the only private companies building such plants.

Many private companies stopped building new coal-based plants in India over a decade ago due to a lack of financing in the absence long-term power supply bids from consumers.

In recent years, however, energy demand has outpaced expectations in India, the world’s most populous country, as economy activity picked up.

Since August, the South Asian nation’s energy demand rose 18% to 20% year-on-year. The government expects it to rise by at least 6% annually till end of this decade.

During the meeting, Singh said new estimates see India’s peak power demand reaching 335-gigawatts by 2030 versus the present 240-gigawatts, according to the three sources.

Private power companies were told that the majority of the peak-hour electricity demand in India can be met by coal-based power stations, since storage technologies are costlier to support solar and wind-based energy generation, officials said.

A total coal-based capacity addition of 58 gigawatts is in the pipeline, leaving an expected gap of over 30-gigawatts, they said.

“The Minister assured that the government may look at funding support to such projects (from private firms) from state-run financiers such as Power Finance Corp and REC Ltd,” one of the sources said.

All three sources at the meeting asked not to be identified as they were not authorized to speak to media.

Singh told the meeting that despite adding coal-based capacity, India will still meet its climate goals of shifting to 50% non-fossil-based power capacity since the country is also adding renewable energy projects. — Reuters

Canada tax rule curbs Airbnb deductions to ease rental shortage

The Airbnb logo is seen on a little mini pyramid under the glass Pyramid of the Louvre Museum in Paris, France, March 12, 2019. — REUTERS

TORONTO – Canada introduced tax measures on Tuesday to ease a severe rental housing shortage by limiting income tax deductions on short-term rentals on services such as Airbnb Inc and VRBO, joining many countries that are enacting similar laws.

The new rules apply as of Jan. 1 in provinces and municipalities that bar short-term rentals, and affect deductions such as interest expenses, the federal government said in its fall economic statement.

In Montréal, Toronto and Vancouver alone, an estimated 18,900 homes were being used as short-term rental properties in 2020, the report added, noting that the number “has almost surely increased in recent years.”

Airbnb, however, said listings in Toronto and Montreal have dropped since 2020.

Similar legal restrictions, including in Australia and Italy, could further hurt the profits of companies such as Airbnb as they face a backlash from hotels.

“Home-sharing regulations are not the solution to Canada’s housing crisis. The reality is the majority of Airbnb Hosts in Canada share one home to supplement their income and listings represent less than 1% of the country’s housing stock,” said Nathan Rotman, Airbnb’s policy lead for Canada, by email.

“Many Canadians earn extra income through home sharing to make ends meet at a time of increasing inflation, interest rates and cost of living.”

Starting in 2024, the government will spend C$50 million ($36 million) over three years to enable municipal enforcement of restrictions on short-term rentals.

Housing supply has failed to keep up with Canada’s immigration-fueled population growth, and housing prices soared during the COVID pandemic as low mortgage rates encouraged higher offers from buyers working from home.

Canadian homebuilders cannot keep up with the demand, while U.S. cities are adopting regulations including requiring hosts to obtain licenses and pay registration fees.

Gabriel Giguère, public policy analyst at Montreal Economic Institute, criticized the government’s decision to modify the tax treatment of the expenses of owners of short-term rental apartments.

“It’s not as if we’re a handful of Airbnbs away from solving Canada’s housing shortage. Any solution that does not involve a massive increase in the housing supply is unfortunately just a distraction,” Giguère said.

Florence, Italy, has banned new short-term home rentals, while Australian tourist destination Byron Bay will limit the availability of some properties for short-term holiday stays.

British Columbia requires hosts to register with the province, and has increased fines for breaking local rules and restricted rentals to only a portion of the principal residence. The rules go into effect next year. — Reuters

UK’s Hunt to cut taxes to boost economy and election prospects

IAN TAYLOR-UNSPLASH

LONDON – Finance minister Jeremy Hunt will announce tax cuts for businesses on Wednesday – and possibly some for voters too – as he tries to speed up Britain’s sluggish economy and help his struggling party before an election expected next year.

Buoyed by a fall in inflation, Hunt plans to use his Autumn Statement budget update speech to parliament to shift the government’s focus to fixing the long-running weak growth problem of the world’s sixth-biggest economy.

Another, more immediate concern of Hunt and Conservative Prime Minister Rishi Sunak will be the big opinion poll lead of the opposition Labour Party with an election likely within the next 12 months.

Hunt is due to announce ways to boost business investment by 20 billion pounds ($25 billion) a year over the next decade, cut taxes and get more people into work, according to excerpts of his speech shared with media.

“After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track,” Hunt is due to tell parliament. “But the work is not done.”

Other measures will increase investment into high-growth industries, cut red tape, get debt falling and bring inflation down to 2% from 4.6% in the most recent data, the speech excerpts showed.

The Times reported that Hunt would cut the headline rates of national insurance for around 28 million people and make tax incentives for business investment permanent.

Hunt and Sunak have a bit more fiscal room for manoeuvre than they thought earlier this year after government borrowing came in lower than predicted in recent months, thanks to high inflation pushing up tax revenue.

But the problems they face still represent a major challenge.

The public finances are under strain after the government’s huge spending to protect households from the energy price surge last year and prop up the economy during the COVID pandemic, as well as a big rise in borrowing costs.

Furthermore, Britain’s budget forecasters will probably cut sharply their economic growth predictions on Wednesday due to high inflation, labour shortages and Brexit’s after-effects.

That more sombre outlook will add to the challenge for Hunt to stay on course to meet his target to start reducing Britain’s debt burden in five years’ time.

Public debt has trebled as a share of gross domestic product over the last 20 years to almost 100%.

After the meltdown in British financial markets last year, triggered by the huge tax cut plans of former prime minister Liz Truss, Hunt and Sunak have promised to move carefully.

Any big tax cuts would also prove counter-productive if they stoked inflation and forced the Bank of England into raising interest rates, which are already at a 15-year high.

HOLD FIRE

With only limited fiscal firepower, many analysts think Hunt and Sunak will wait for a full budget statement, due in March, to announce big tax cuts for voters and announce only a small-scale easing of the tax burden for individuals on Wednesday.

That could anger some Conservative lawmakers who are alarmed that taxes are due to go up under the current parliament by the most since World War Two, based on calculations by the Institute for Fiscal Studies think tank.

Hunt and Sunak announced major tax-raising measures a year ago to assuage bond investors after Truss’s mini-budget.

Many analysts say that in the coming years whoever runs Britain will have to raise taxes further, not cut them.

Sunak has said that as well as cutting taxes “carefully and sustainably” he wants to change welfare benefits for working-age adults to get more of them into work, a move which could help to ease a shortage of workers that is weighing on employers but leave the government open to charges of unfairness.

He has said building a sustainable energy network and a “world-class” education system are key to his growth plans too. — Reuters

BSP: El Niño to weigh on inflation through 1st half

A farmer walks in a dry and cracked paddy field in Quirino province, which was affected by the El Nino weather phenomenon, March 4, 2010. — REUTERS

By Keisha B. Ta-asan, Reporter

THE IMPACT of the El Niño weather event may persist throughout the first half of 2024, which could lead to higher prices of power, imported rice and food items, the Bangko Sentral ng Pilipinas (BSP) said.

The BSP in its November Monetary Policy Report said El Niño could dampen water resources and agricultural productivity next year amid expected dry spells and droughts in some parts of the country.

“The impact of El Niño is quantified through several channels including higher electricity rates due to dry weather conditions, higher domestic crop prices owing to lower production, and higher international rice prices due to lower global production and the implementation of export restrictions,” the central bank said.

“These factors are assumed to persist in the first half of 2024 and contribute to the inflation forecast for the year,” it added.

During the Nov. 16 policy meeting, the BSP raised its baseline inflation forecast to 6% in 2023 (from 5.8% in September) and to 3.7% in 2024 (from 3.5%) but trimmed its 2025 inflation estimate to 3.2% (from 3.4%).

Electricity rates could rise in the fourth quarter to the second quarter of 2024 due to the warm and dry weather conditions from El Niño, according to the BSP.

“A substantial increase in demand for power which could not be supported by power supply reserves could lead to a declaration of yellow or red alerts in the transmission grids, resulting in higher generation charges from the Wholesale Electricity Spot Market (WESM) and independent power producers (IPP),” the central bank said.

Local electric cooperatives may also have to use more expensive alternative sources of power generation amid the expected drop in output from hydropower plants. 

“A 3% month-on-month increase in electricity prices is assumed for the period January to June 2024. This is based on the average increase in the overall electricity rate during the El Niño episode in 2018-2019,” the BSP said. 

Meanwhile, temperature shocks may have a significant negative effect on rice and corn, which accounted for about 8.9% and 0.5% of the consumer price index (CPI) basket, respectively.

El Niño could also lead to stronger demand for rice globally, particularly for imports from Vietnam and Thailand. However, the global rice supply is also vulnerable to El Niño and possible trade restrictions.

“With much of the increase having taken place in the first half of the year due to the combined factors of strong demand and tight supply conditions as well as concerns over El Niño conditions in most of Asia’s rice producers, rice prices on average are seen to be higher. Higher rice prices are assumed starting January 2024,” the BSP said.

China Banking Corp. Chief Economist Domini S. Velasquez in a Viber message said there would be some tightness in food supply through mid-2024 due to El Niño.

“We think that one of the reasons that the BSP continues to remain hawkish is because of the continued threat to food supply/prices in the near term,” she said.

The BSP kept its benchmark interest rate steady at a 16-year high of 6.5% at its policy meeting last week. Since it began its aggressive monetary tightening cycle in May 2022, the BSP has raised borrowing costs by a total of 450 basis points.

Ms. Velasquez noted that historically, prices of food have increased during El Niño or La Niña episodes. Since the current El Niño episode has been expected, she said governments should implement appropriate measures to mitigate the impact.

“Across Asia, countries have been bracing themselves for El Niño’s impact. In fact, in Thailand, the Thais are encouraged to conserve water,” she added.

Federation of Free Farmers National Manager Raul Q. Montemayor said rice crops would need large amounts of water in the planting season between now and February 2024. Farmers would also heavily rely on irrigation during the dry season.

“El Niño may affect the availability of irrigation water if there is insufficient rain, given that irrigation ranks next to potable water use and electricity generation in terms of priority,” he said.  “By March next year, farmers will start harvesting and little rain at this time would be ideal since harvested stocks will not have to be dried much.”

In the BMI Southeast Asia El Niño Exposure Index released in July, the Philippines ranked sixth most vulnerable to El Niño-induced inflationary pressures among 13 countries.

National Economic and Development Authority Secretary Arsenio M. Balisacan earlier said a “slight El Niño” could cause agricultural production to decline by 1-2%.

The Philippines experienced its worst El Niño episode in 1998, when the economy contracted by 0.5% as agricultural production fell by 7%.

External debt service soars to $8.9 billion as of end-August

Euro, Hong Kong dollar, US dollar, Japanese yen, pound and Chinese yuan banknotes are seen in this picture illustration in Beijing, China. — REUTERS

THE PHILIPPINES’ external debt service burden more than doubled to $8.89 billion as of end-August, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Based on data posted on the BSP’ website, the Philippines’ external debt service burden surged by 125% from $3.95 billion a year earlier.

The debt service burden refers to the amount of money a country needs to pay back its foreign creditors. This includes both principal and interest payments on its external debt.

BSP data showed principal payments soared by 92.7% to $4.47 billion in January to August from $2.32 billion a year ago.

Interest payments surged by 171% to $4.43 billion in the first eight months of the year from $1.63 billion a year earlier.

Principal external debt service is mostly fixed medium- to long-term credits, while interest payments are for fixed and revolving short-term credits of banks and nonbanks.

“The country’s debt service burden experienced an uptick this year due to higher interest rates. This was largely expected,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

Globally, central banks have tightened monetary policy to curb inflation. This includes the BSP, which was regarded as one of the most aggressive central banks in the region after it hiked key rates by 450 basis points to 6.5% from May 2022 to October 2023.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the higher external debt service burden to high borrowing costs, which “bloated interest payments.”

Larger maturities of government debt and a weaker peso against the dollar may have also led to higher debt service costs, he added.

Latest data showed outstanding external debt reached $117.918 billion as of end-June, 9.5% up from $107.692 billion a year ago.

External debt refers to all types of borrowings by Philippine residents from nonresidents, following the residency criterion for international statistics.

The debt service ratio, or principal and interest payments as a fraction of export receipts and primary income, rose to 11% at the end of June from 4.6% a year earlier.

“For the coming months, debt servicing could be somewhat tempered by the recent downward correction in US/global/local bond yields and possible policy rate cuts by the Fed and other global central banks that could reduce financing/borrowing costs,” Mr. Ricafort said. 

A stronger peso exchange rate and narrower budget deficit in the coming months would also reduce the need for new borrowings and cut debt service costs, he added.

“The country’s external debt position will benefit from expected policy rate cuts in the second half of 2024,” Ms. Velasquez said.

BSP Governor Eli M. Remolona, Jr. earlier said the Monetary Board intends to keep policy settings “sufficiently tight” until the downward trend in inflation becomes more evident next year.

He also ruled out any rate cuts in the first half of 2024, as inflation may still go above the 2-4% target range until July next year.

“Moving forward, we may see a bit higher debt before slowing down as disinflation continues. Anticipation of less hawkish global central banks may eventually help,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Inflation slowed to 4.9% in October from 6.1% in September, the slowest in three months. However, it still marked the 19th straight month that inflation breached the 2-4% central bank target.

This brought average inflation in the first 10 months to 6.4%, still above the BSP’s 6% full-year forecast. — Keisha B. Ta-asan

House committee OK’s amendments to CREATE law

A House committee approved a bill seeking to amend the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. — PHILIPPINE STAR/MICHAEL VARCAS

By Beatriz Marie D. Cruz, Reporter

A HOUSE of Representatives committee on Tuesday approved a bill that would allow companies inside economic zones and freeports to enjoy duty-free privileges and value-added tax exemptions on imports and local purchases as part of the Marcos government’s push to make the Philippine tax incentive system more globally competitive.

The measure will amend the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which restricts the so-called zero-rating on value-added tax (VAT) on local purchases to the sale of goods and services directly used in a project or activity of a registered exporter.

The CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill also empowers the President to modify, craft and grant incentive packages, without the recommendation of the Fiscal Incentives Review Board.

“The President has instructed us to get this done, and the (House) leadership is trying to approve it by end of this month,” Committee on Ways and Means Chairman and Albay Rep. Jose Ma. Clemente S. Salceda said in a statement.

The CREATE MORE bill seeks to introduce a “simplified and streamlined” tax refund system for registered business enterprises.

Under the bill, domestic and export companies, even those inside ecozones and freeports, would continue to enjoy duty exemptions, VAT exemption on importation, and the VAT zero-rating of local purchases as provided in their respective investment promotion agency (IPA) registrations.

“Registered export enterprises shall enjoy nonincome tax incentives, such as duty exemption on importation of capital equipment, raw materials, spare parts or accessories, VAT exemption on importation and VAT zero-rating on local purchases, as long as the registered export enterprise maintains 70% of the total annual production as export sale and continues to be registered in good standing with the IPA,” according to the bill.

The measure also seeks to reduce the corporate income tax to 20% for those under the enhanced deduction regime from 20-25%.

Under the measure, the information technology and business process outsourcing sector will be allowed to “conduct business under alternative work arrangements.”

“These revisions are meant to help attract more foreign investments into the country by simplifying the investment incentives, making them more comprehensive and consistent, as well as better aligned with the investment incentives of other neighboring ASEAN (Association of Southeast Asian Nations)/Asian countries,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Facebook Messenger chat.

Semiconductor and Electronics Industries in the Philippines Foundation, Inc. President Danilo C. Lachica said the measure should include “provisions to mitigate high operating costs (power, logistics, process cooling water and labor).”

Assistant Minority Leader and Gabriela Party-list Rep. Arlene D. Brosas, who opposed the measure, said it would only benefit large corporations that will enjoy the tax cuts.

“The current CREATE Law already offers significant tax incentives to large corporations, decreasing their tax obligations. Despite this, the proposed CREATE MORE bill seeks additional amplification of these benefits, suggesting an insufficiency in the current incentives,” she said in a statement.

Ms. Brosas said the bill’s provision giving the President the power to grant incentive packages “raises concerns about potential cronyism and preferential treatment among large businesses affiliated with the President.”

CREATE was signed in 2021 to reduce tax and amend the incentive system to support businesses recovering from the pandemic.

GLOBAL MINIMUM TAX
Meanwhile, Mr. Salceda said the Department of Finance (DoF) and other stakeholders should propose their own amendments that would then be discussed when the bill reaches the plenary.

He said the bill amending the CREATE law should also account for the possible impact of the global minimum corporate tax.

“We need to prepare for when countries accede to this regime… Among all ASEAN-6 economies, only the Philippines has not made significant progress in implementing the rules. But it will come. And when it does, it could affect our tax incentive system,” he said.

In 2021, more than 130 countries agreed to enforce a global minimum tax under an Organisation for Economic Co-operation and Development deal. A global minimum tax rate of 15% will be imposed on profits of multinational enterprises, regardless of where these were generated.

“Those who are under the income tax holiday or special corporate income tax regime of 5% might be required to pay a top-up tax in their home countries. When that happens, our tax breaks will be quite ineffective in promoting foreign investments,” Mr. Salceda said. “So, we have to imagine new nontax incentives such as infrastructure and market promotion that make doing business here easier and more profitable.”

The lawmaker said the Philippines should consider a tax incentive regime that complies with the global minimum tax but can still attract foreign investors.

“I am personally thinking of a tax regime where we impose a 15% corporate income tax rate, plus enhanced deductions for 25 years,” he said.

BIR surpasses October collection target

The Bureau of Internal Revenue (BIR) collected P274.429 billion in October. — PHILIPPINE STAR/ RUSSELL PALMA

THE BUREAU of Internal Revenue (BIR) collected P274.429 billion in October, surpassing its target for the month by 8.57%.

The October tally also jumped by 46.94% from P186.759 billion in actual collections a year earlier.

“With the intensification of the bureau’s tax enforcement activities, specifically on the campaign against sellers and buyers of fake receipts, and with the continuous streamlining and digitization of the BIR’s core services, we hope to encourage all noncompliant taxpayers to comply fully with the provisions and requirements of the tax laws,” BIR Commissioner Romeo D. Lumagui, Jr. said in a statement on Tuesday.

In the 10-month period, BIR revenues rose by 11.1% to P2.132 trillion from P1.919 trillion a year ago.

The agency’s collection from January to October already accounted for about 80% of its full-year target.

The BIR is targeting to collect P2.64 trillion this year, which is 13% higher than its collection of P2.34 trillion in 2022.

Mr. Lumagui said the agency would likely reach or even surpass its collection target for the year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the improvement in tax collection was due to the recovery of businesses and other economic activities that led to increased sales, spending and employment.

“Intensified tax collections based on existing tax laws also improved BIR tax revenue collections, as part of fiscal reform measures,” he said in a Viber message.

The BIR has been studying ways to expand its tax base, including using a digital platform.

Last month, it released the final draft of its proposed creditable withholding tax policy for gross remittances of electronic marketplace operators to online sellers. 

Under the draft, a withholding tax of 1% will be imposed on one-half of the gross remittances by domestic e-marketplace operators to online merchants for goods or services sold through their facility.

Earlier, BIR Assistant Commissioner Jethro M. Sabariaga said the agency’s collection for the remainder of the year is expected to be driven by household consumption and government spending.

The BIR collects about 70% of government revenue. — Luisa Maria Jacinta C. Jocson

SEC to ban unregistered online trading platforms

THE Securities and Exchange Commission (SEC) is looking at banning unregistered cryptocurrency and online trading platforms to protect investors.

In a statement on Tuesday, SEC Commissioner Kelvin Lester K. Lee said several unregistered platforms for cryptocurrency and online trading would soon be the subject of advisories by the corporate regulator, even banning them from operating in the country. 

“First and foremost, the SEC has to protect the credibility of our markets—and this can only happen if it is assiduous in efforts to secure investors against potential and actual harm. Part of these efforts is to be strict in the agency’s regulatory function: we only allow entities, whether local or foreign, to operate in the Philippines once they are registered with the SEC or other Philippine regulators,” Mr. Lee said.

“Allowing unregistered entities to operate only increases investors’ exposure to risk; and normal, everyday business already has risks. Let’s not add to that,” he added. 

Aside from stricter enforcement, Mr. Lee said the SEC is also embarking on a campaign to have 300 publicly listed companies (PLCs) in the local stock market by 2025 as part of its “Project 300” initiative. 

Currently, the local bourse has 284 PLCs. 

“In the case of PLCs, the Philippines has around 280-285 PLCs while Vietnam, for example, has about 400 or 400 plus. Now, it is not simply a matter of competing with other countries on the number of PLCs and IPOs (initial public offerings). Increasing the number of PLCs and IPOs is a booster for our economy,” Mr. Lee said. 

“Our initial goal is the listing of 15 offerings (IPOs) [in the] near term. This year, three companies have already expressed interest in filing IPOs with the support and encouragement of the SEC,” he added. 

Meanwhile, Mr. Lee said more PLCs and IPOs allow more businesses to have access to capital and investments in the form of bonds and securities.

He added that the SEC is in talks with the Philippine Stock Exchange, Inc. to reduce the broker’s fee or commission for IPO processing. 

The SEC has committed to complete IPO registration within 45 days while reducing the required financial information submitted by IPO applicants to cover three years from four years.

“When there is more capital and wealth to go around, the more resources there are for both the government and the private sector to invest in the country’s economic and social development. Even individual investors have more chances to invest and earn from dividends,” Mr. Lee said.

“Increasing the number of PLCs and IPOs is a booster for our economy. Simply put, it’s a builder of wealth and capital,” he said, adding that the “ripple effect” provides advantages to businesses because they have more access to capital and investments via bonds and securities.

“Having more PLCs and IPOs also impacts good governance and social development,” he added. — Revin Mikhael D. Ochave

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