INFLATION in the Philippines may settle within the 2-4% target band for every month in 2024, the World Bank (WB) said, though it warned of the need to remain alert for risks to the inflation outlook.

At the 2024 International Tax Conference, World Bank Philippine Senior Economist Ralph van Doorn said containing inflation through both monetary and non-monetary measures remains the main challenge this year.

“We think it’s likely that inflation will stay over the whole year between 2-4%,” he told reporters on the sidelines of the event. “We know there are risks to it, but we’ll have to see if they materialize. If we see that these risks are becoming more concrete, then we will have to also make adjustments to our projections.”

The Philippine Statistics Authority reported that headline inflation decelerated to an over three-year low of 2.8% in January, marking the second straight month it fell within the Bangko Sentral ng Pilipinas (BSP) target range of 2-4%.

In its December update, the World Bank projected Philippine inflation to settle at 3.6% this year and 3% in 2025. The BSP expects inflation to average 3.6% this year and 3.2% in 2025.

Asked if easing inflation could prompt the BSP to cut borrowing costs, Mr. Van Doorn said it is difficult to forecast what the BSP will do.

“We have to really let the central bank do its job,” he said. “The BSP has a very data-driven approach, so it will look carefully at inflation, at underlying core inflation and inflation expectations before making a decision on rate cuts.”

The BSP has kept its benchmark interest rate unchanged at a 16-year high of 6.5% for three straight meetings. It had hiked rates by 450 basis points (bps) between May 2022 and October 2023 to tame inflation.

BSP Governor Eli M. Remolona, Jr. has said that the Monetary Board may consider a rate cut in the second half, but cited as a condition that inflation be firmly within the 2-4% target.

Mr. Van Doorn said the World Bank sees global and domestic risks for the Philippine economy this year.

“We see tensions and wars in various parts of the world, and that means this all could have an effect on supply chains, on food supply, on fuel prices,” he said.

“If that happens, it’s most likely to have an effect on many countries that import food and fuel, and the Philippines is one of them,” he said.

Another risk is that major central banks may keep their own monetary policy tighter for longer, as global inflation may be “stickier-than-expected,” which could affect the Philippines as well.

The BSP is widely expected to maintain an interest rate differential with the Federal Reserve to shield the peso from depreciation pressures and volatility.

The Fed has kept borrowing costs unchanged at 5.25-5.5% since September, following the combined 525 bps worth of rate hikes implemented between March 2022 and July 2023.

“Our third risk would be more of a domestic nature. We see the risk of El Niño, the impact it could have on the agricultural sector, and that could have an effect on the food supply and food prices,” Mr. Van Doorn said.

He also cited uncertainties like the proposed minimum wage hikes, which could stoke inflation and add pressure to inflation expectations.

“It’s important to be very careful in considering these wage hikes to make sure that inflation expectations remain anchored at between 2-4%,” he said.

Legislators have been considering whether to increase minimum wages in the private sector by P100.

Meanwhile, investments into the Philippines will be challenging this year due to a slower global growth outlook, he said.

“But we also see that that country has done a lot (to) attract investment, passing very important laws that promote investment competitiveness. It’s important to implement these and make sure investors know about it,” Mr. Van Doorn said.

The central bank reported that net inflows of foreign direct investment (FDI) grew 27.8% year on year to $1.048 billion in November.

This was the highest FDI net inflow level recorded for an individual month since the $2.662 billion posted in December 2021.

Month on month, net FDI inflows rose 60% from $655 million in October.

The BSP projects FDI net inflows of $8 billion by the end of 2023 and $10 billion at the end of 2024.

Separately, Finance Secretary Ralph G. Recto met with World Bank Group Managing Director and Chief Financial Officer Anshula Kant to discuss how to improve the bank’s lending terms for the Philippines and identify potential areas for partnership.

“The World Bank committed to introducing innovative financial instruments tailored to the needs of the Philippines,” the Department of Finance (DoF) said in a statement on Tuesday.

“These include instruments specifically designed to sharpen the country’s crisis toolkit to ensure swift access to funding during times of emergency,” it said.

The DoF and the World Bank reiterated their strong commitment to boost the government’s socioeconomic agenda through their partnership, the DoF added. — Keisha B. Ta-asan

THE Department of Transportation (DoTr) may need to bring the feasibility study for the Mindanao Railway project back to the National Economic and Development Authority (NEDA) to update the proposal, with the withdrawal of financing from China requiring an overhaul of cost estimates and a change of contractors.

Transportation Secretary Jaime J. Bautista in a briefing on Monday said the government has not sought financing from the Japan International Cooperation Agency (JICA) or other official development assistance (ODA) sources for the project.

“We will need to review the detailed engineering design and since this project has been delayed, we might need to again bring this to NEDA for updating,” he said.

Earlier this month, Mr. Bautista said the DoTr will continue to work on the first phase of the Mindanao Railway project after withdrawing its request for ODA from China.

The DoTr will also continue the various pre-construction activities in Davao City while negotiating funding for the project.

“We inherited this project from the previous management and they have started working with some landowners so there are lot owners already paid,” Mr. Bautista said.

“But since we will update the feasibility study, we will have to again look at the numbers and if the cost is more than 10%, we will need to go back to NEDA. Also, we’ll need to look at the ridership because the alignment is almost similar to the existing highway,” he said.

He said the government is hoping to update the feasibility study within the year, calling the Mindanao rail project “important,” noting, “we’ve already promised this.”

Mr. Bautista also said NEDA approval process has been efficient, citing the Manila International Airport project, which only took six weeks to approve.

“As long as we give the right information and numbers to NEDA, they will be able to work fast and issue the approval,” he said.

Last year, the DoTr said it is considering applying for ODA with Japan, South Korea, or India to fund the government’s three major railway projects, including the Mindanao Railway, after ruling out China as a funding source.

The decision to withdraw the Philippine request for ODA from China was due to lack of progress in signing a loan deal.

Finance Secretary Ralph G. Recto said there is a possibility the project could be implemented as a public-private partnership (PPP).

“We already have the new PPP Code. We are just awaiting as well as the updated feasibility study of the project and then we can discuss the best way to procure the project,” he said.

Jeremy S. Regino, undersecretary for railways, said the financing could very well involve DoTr budget funds, ODA, or private partners, adding that the mix of financing “will make the project more viable.”

Meanwhile, JICA Chief Representative Sakamoto Takema said the aid agency has not received any information from the Philippine government regarding the project.

“We respect the preparation of the well-organized plan like the master plan. We don’t know the details of the project. We need to see more information, maybe after (the proposal is updated) by DoTr,” he said.

The first phase of the Mindanao Railway project covers the 102-kilometer segment from Tagum City, Davao del Norte to Digos City, Davao del Sur. This segment is valued at P81.6 billion.

Once finished, the line will serve around 122,000 passengers a day and is expected to reduce travel time to one hour from the current three hours from Tagum City to Digos.

Separately, Mr. Regino said the Philippines has not terminated its negotiations on the Philippine National Railways (PNR) South Long-Haul project with China, and discussions are still ongoing.

“In fact, the CEXIM (China EXIM Bank) technical team was here last December and looking into the progress of our right of way acquisition, and another study is being conducted by the Chinese consultants,” he said.

The Duterte government in February 2022 awarded to China Railway Design Corp. a contract to build the PNR South Long-Haul project. State-owned Export-Import Bank of China, however, has not confirmed whether it will approve the loan.

“What was terminated was the Mindanao rail and the Subic-Clark (lines) but South Long-Haul has not been terminated. But we are trying to determine certain timelines so that we can move forward,” Mr. Regino said.

Mr. Recto said the study will need to have made progress before financing talks can begin.

“Personally… I prefer PPP to minimize government exposure as much as possible,” he said. “But if there are no takers and it’s a very important project and that it has to be funded, then we go through ODA.”

The PNR south long-haul project consists of a 560-kilometer rail line that will connect Metro Manila to southern eastern Luzon. It was allocated P3 billion worth of funding in the 2024 national budget.

Rail travelers to and from Bicol are expected to experience a reduction in their trip duration to four hours from the current 12.

Meanwhile, the Subic-Clark railway consists of a 71-kilometer rail line connecting the Port of Subic to Clark, the site of an international airport. — Keisha B. Ta-asan