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THE PHILIPPINES’ outstanding debt remains manageable despite breaching the internationally accepted sustainable threshold, the World Bank (WB) said, but stressed the need for a solid fiscal consolidation plan and high economic growth.
“We think the debt is still manageable. Most of our debt is long term, domestic and peso-denominated,” Kevin C. Chua, World Bank senior economist in Manila, said during a briefing on Wednesday.
The Philippines’ debt-to-gross domestic product (GDP) ratio reached 63.5% as of the end of the first quarter of 2022. This was above the 60% threshold considered as manageable by multilateral lenders for developing economies, and much higher than the 39.6% seen as of end-2019.
As of end-April, the National Government’s outstanding debt stood at a record-high P12.76 trillion. The bulk or 70% of the debt was obtained domestically.
However, Mr. Chua said the debt will remain a drag to the country’s economic growth, which the World Bank sees at 5.7% GDP for 2022 and 5.6% on average in 2023-2024.
“We are recommending fiscal consolidation. The way to address the high debt ratio would be higher economic growth and the pursuit of fiscal consolidation,” he said.
The Department of Finance (DoF) last month unveiled a fiscal consolidation plan which aims to raise an average of P284 billion every year for the next 10 years to repay the P3.2-trillion additional debt incurred during the pandemic.
“Some of the recommendations would be improved revenue collection, digitalization, making it easier for businesses and individuals to pay. Also making spending more efficient to avoid leakages and wastage. Third will be to increase the value of money in procurements,” Mr. Chua said.
GROWTH FORECAST
Despite the strong 8.3% growth in the first quarter, the World Bank retained its 5.7% GDP growth forecast for the Philippines this year due to the “very weak external environment,” Mr. Chua said.
The multilateral lender in April cut the GDP outlook from the 5.8% forecast given in December 2021.
“The trend in the recent quarters reflects our optimism the country can maintain robust growth this year. Continuing growth in 2022 will be driven and supported by greater mobility of people, wider resumption of face-to-face economic and social activities
and strong public investments,” World Bank Country Director Ndiamé Diop said during the same briefing.
“To sustain growth beyond 2022, we believe increasing private investments and further reducing infrastructure gaps will be essential.”
Mr. Chua said its forecast for the Philippines is still one of the fastest in the region for this year. However, the forecast is still below the government’s revised full-year growth target of 7-8%.
“Global growth has been downgraded to 2.9% from 4.1%. This weak external environment will impact the economy because our main trading partners’ — China, United States — growth are decelerating and this will affect our exports,” he said.
Other risks to the Philippines economic outlook include geopolitical uncertainty, tightening global financing conditions, as well as threat of a new variant-driven surge in coronavirus disease 2019 cases.
“Another reason why we gave a 5.7% growth forecast for the Philippines is that rising inflation may also impact consumption in the country,” Mr. Chua said.
Inflation accelerated by 5.4% year on year in May, the highest in three and a half years, as food and fuel prices continued to rise.
Mr. Chua said the Philippines has to keep a close eye on inflation, especially since the Russia-Ukraine war continues to impact global food and commodity prices.
Higher prices have a direct impact on poverty, with World Bank estimates showing a 10% increase in the global price of cereals will raise the poverty headcount by one percentage point. This means an additional 1.1 million Filipinos will be plunged into poverty.
A 10% rise in energy prices is projected to increase the poverty headcount by 0.3 percentage point, pushing 329,000 more Filipinos into poverty, it said.
“Authorities have to use all available policy tools to address inflation, including monetary measures to prevent the de-anchoring of inflation expectations, and supply-side measures such as importation and lower tariffs and non-tariff barriers for important commodities to help augment domestic supplies as needed, and greater support to agriculture production through extension services, seeds, and fertilizer,” Mr. Chua said.
Also, Mr. Chua said there is no risk of “stagflation,” or high inflation and slow growth for the Philippines.
“As you can see the 5.7% growth for the country is really high, really good… I don’t see stagflation in the country,” he added. — K.B.Ta-asan
THE PHILIPPINES may need at least 10 years before its debt-to-gross domestic product (GDP) ratio will return to its pre-pandemic level of 40%, Finance Secretary Carlos G. Dominguez III said.
“Assuming that a debt-to-GDP ratio of 40% is the ideal health…It could take us a minimum of 10 years to get back [on track]. That is the effect of COVID-19 (coronavirus disease 2019),” he said during a briefing on Wednesday.
The Philippines’ debt pile ballooned to a record P12.76 trillion as of the end of April, reflecting the surge in borrowings to finance its pandemic response.
The country’s debt-to-GDP ratio stood at 63.5% as of the end of the first quarter, which surpasses the 60% threshold considered as manageable by multilateral lenders for developing economies.
This is also much higher than the 39.6% debt-to-GDP ratio seen as of end-2019 or before the pandemic.
The Philippine Institute for Development Studies (PIDS) estimated the debt-to-GDP ratio will peak as high as 66.8% by 2023 and 2024, before falling to 65.7% by 2026.
The PIDS presented to the Department of Finance on Wednesday its report on the fiscal effect of the COVID-19 on the country.
PIDS Research Specialist John Paul C. Corpus outlined three scenarios and dates when the government could achieve the ideal debt-to-GDP ratio of 40%.
In order to reach this ratio by 2031, a median annual primary balance (revenues minus non-interest expenditures) increase of 2.42% of GDP would be needed, based on the most optimistic scenario that assumes a GDP growth rate of 7% and a real interest rate of 2%.
To reach the 40% debt-to-GDP ratio by 2041 and 2051, a median annual increase of primary balance of 0.86% of GDP and 0.35% of GDP respectively are needed, under optimistic conditions.
“So, the longer the terminal date, the easier it becomes. So, the long COVID could be 20 years,” Mr. Dominguez said.
PIDS fellow Justine Diokno-Sicat, who co-authored the report, told reporters it will not be easy to return to pre-pandemic debt-to-GDP ratio.
If the government does not immediately return to a pre-pandemic debt-to-GDP ratio, she said the only real risk is a credit rating downgrade.
Fitch Ratings in February affirmed the Philippines’ investment grade rating but also maintained the “negative” outlook amid “possible challenges in unwinding the policy response to the health crisis and bringing government debt on a firm downward path.”
A negative outlook means Fitch could downgrade the Philippines’ credit rating in the next 12 to 18 months.
“We’ve been talking with multilaterals; the World Bank was one of them. There’s some sort of meeting of minds that the primary goal is really to bring life back into the economy, and that will naturally correct the debt,” Ms. Diokno-Sicat said.
Economic managers target a 7-8% GDP growth this year.
Mr. Dominguez earlier said the Philippines has to grow an average of 6% annually in the next six years to reduce the country’s debt. — T.J.Tomas
THE COUNTRY’S dollar reserves declined as of end-May amid higher foreign currency withdrawals to repay debt and the lower valuation of the central bank’s gold reserves.
Gross international reserves (GIR) — which shield the country from liquidity shocks — stood at $103.53 billion as of end-May, data from the Bangko Sentral ng Pilipinas (BSP) showed on Tuesday.
The end-May GIR fell by 1.7% from the $105.4 billion as of end-April, and by 3.4% from $107.25 billion in May 2021.
“The month-on-month decrease in the GIR level reflected mainly the National Government’s (NG) foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures,” the BSP said in a statement on Tuesday evening.
Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.
The level of dollar reserves as of end-May is enough to cover about 6.6 times the country’s short-term external debt based on original maturity and 4.5 times based on residual maturity.
It is also equivalent to 9.1 months’ worth of imports of goods and payments of services and primary income.
“At 9.1 import cover, international reserves remain more than adequate to cover the dollar needs of the economy; and it is very much above the 3-month rule of thumb where reserves will be considered worrisome,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.
The BSP also attributed the drop in the dollar reserves to the downward adjustment in the value of the BSP’s gold holdings as the price of gold declined in the global market.
The BSP’s gold holdings were valued at $9.02 billion as of end-May, a 2.7% decline from the $9.27 billion as of end-April. This was also 8.8% lower than the $9.90-billion level a year earlier.
The central bank’s reserve assets also include foreign investments, foreign exchange, reserve position in the International Monetary Fund (IMF) and special drawing rights (SDR).
The BSP’s foreign investments amounted to $87.874 billion as of end-May, 1.8% down from $89.562 billion in the prior month and 5% down from $92.835 billion in 2021.
Meanwhile, the level of foreign exchange reserves rose by 3% to $2.074 billion as of end-May from $2.012 billion in April, but 15% lower than the $2.464 billion seen last year.
Reserves with the IMF tripled to $3.783 billion as of end-May, from the $1.235 billion in May 2021.
In August 2021, the Philippines received $2.8-billion worth of SDRs from the IMF, as part of the latter’s efforts to help countries recover from the coronavirus pandemic.
“Moving forward, we expect a slight weakening of reserves towards the end of the year as the current account balance is expected to widen. Imports are bound to increase due to the high price of oil, and food and exports will likely weaken due to a more subdued global economy,” Ms. Velasquez said.
The BSP expects to end the year with $108 billion in dollar reserves.
GIR stood at $108.891 billion as of 2021, 1.11% lower than the record $110.117-billion level as of end-2020. — Keisha B. Ta-asan
TOKYO — The Philippines on Wednesday appealed directly to consumers in its top export market Japan to pay higher prices for imported bananas to help shoulder a surge in production costs.
Prices for fuel and agricultural supplies are driving many farmers to the brink of bankruptcy, according to a report by the Philippines’ embassy in Tokyo that pleaded for Japanese consumers to share the burden for “sustainable bananas.”
“It will be unrealistic and unfair for Philippine banana farmers to maintain the status quo,” Philippine Ambassador to Japan Jose C. Laurel V told reporters.
Producers have been negotiating with Japanese retailers and trading companies on prices, but were told to take their concerns to the public.
“It was impressed upon us that one of the important things that we need to do is to explain to the consumers why there needs to be a price increase,” said Robispierre L. Bolivar, second in command at the Philippine embassy.
Consumer prices are surging in Japan after decades of deflation, accelerated by the yen’s drop to a 20-year low, soaring energy costs and logistical logjams caused by the crisis in Ukraine.
Food prices are in particular focus, with everything from snack makers to breweries instituting their first price increases in many years.
Researcher Teikoku Databank reported that prices on more than 10,000 food items in Japan would rise in 2022.
Japan was the top export destination for Philippine bananas in 2020, just exceeding shipments to China, United Nations’ trade data showed.
Japanese households on average spend 4,387 yen ($32.92) on bananas a year, more than any other fruit, according to data from the agriculture ministry.
Prices for Philippine bananas have been flat for seven years, but a surge in production costs amid the Ukraine crisis have made current margins untenable, embassy officials said. — Reuters
RAZON-LED Prime Infrastructure Holdings, Inc. (Prime Infra) plans to build what it claims to be the world’s largest solar power facility with a capacity of up 3,500 megawatts (MW) plus a battery energy storage system that can hold up to 4,500 MW hours.
“Prime Infra finds a sweet spot to pursue solar as we take advantage of the steep decline in installation costs over the past decade and the improved battery energy storage system technology that allows us to build an economically critical and socially relevant infrastructure at a scale the world has never seen before,” said Guillaume Lucci, president and chief executive officer of Prime Infra, in a media release on Wednesday.
Prime Infra said the project is to be led by Terra Solar Philippines, Inc., which is a unit Terra Renewables Holdings, Inc., the renewable energy subsidiary of Enrique K. Razon, Jr.’s infrastructure firm that partnered with Solar Philippines Power Project Holdings, Inc.
Terra Solar will supply 850 MW to Manila Electric Co. (Meralco) from power generated by the proposed facility.
Terra Solar late last year submitted an unsolicited offer to supply Meralco’s supply requirements, for which the distribution utility sought challengers through a competitive selection process. Two entities challenged the bid but failed to submit, paving the way for the forging of a power supply agreement with Meralco.
Earlier this year, Meralco said that the competitive bidding was in compliance with the Department of Energy’s policy on renewable portfolio standards (RPS). It said the power supply forms part of its efforts to source up to 1,500 MW of renewable energy (RE).
The RPS program requires power distribution utilities, including electric cooperatives and retail electricity suppliers, to source or produce a fraction of their requirements from eligible RE resources.
Mr. Lucci said the “record-breaking” project highlights solar power’s contribution to boost the country’s energy security, adding that “solar, which is normally looked at for peaking, is now being made available by Terra Solar to answer Meralco’s mid-merit requirement, thereby addressing both the need for additional capacity and compliance with RPS.”
Mid-merit power plants operate to fill the gap between baseload generation capacity and peak generation capacity.
Prime Infra described the project as “a model of dependable renewable energy, which represents a stable price not subject to fuel imports volatility for the rest of its 20-year contract.”
It cited Terra Solar’s projection that the 850-MW supply can displace a yearly usage of around 1.4 million tons of coal or 930,000 liters of oil.
“This means reduction in both greenhouse gas emissions and import dependency for the country from 2026 to 2046,” it added.
The company said that of the power supply contracted with Meralco, 600 MW will be available by 2026, while 250 MW more will be delivered in 2027. Meralco previously said that the mid-merit power it bid out was for 20 years.
Prime Infra did not say where the facility will be built, but Meralco earlier said that Terra Solar had proposed its solar power plants with an energy storage system in Batangas, Cavite, Nueva Ecija, Tarlac, and Zambales.
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
THE Philippine Competition Commission (PCC) has given the green light to the proposed acquisition by Ayala Corp. unit AC Logistics Holdings Corp. of the controlling stake in Air 21 Holdings, Inc.
The agency said in a statement on Wednesday that its mergers and acquisitions (M&A) office deemed that the merging parties would not create a dominant market position and substantial lessening of competition.
In its decision dated May 31, the PCC said it “found that the proposed acquisition does not result in substantial lessening of competition in relevant markets within the logistics sector. This is due to substantial competitive constraints exerted by other market players in this sector nationwide.”
It said customers of the services offered by AC Logistics and Air 21 were determined to also engage with multiple service providers, indicating competition in the industry in terms of price and service quality.
In reaching its decision, the PCC looked into the merger’s effects in the national markets of domestic courier and messengerial services; domestic air, sea, and road freight forwarding; nationwide or regional market for trucking services; general warehousing and storage services in Luzon, and cold storage services in Metro Manila and Southern Luzon, since the operations of AC Logistics and Air 21 overlap in some markets.
The PCC said that its M&A office “found that the merging parties would not result in dominant market position given its resulting market shares in the relevant markets.”
It added that the two parties were deemed to have no increased ability nor incentive to engage in anti-competitive foreclosure such as exclusively supplying its own downstream customers or limiting its services to other downstream markets or players.
The PCC said it “deemed it was unlikely for the transaction to effectively limit access of other players to a significant customer base in the same relevant markets.”
In November last year, AC Logistics’ parent firm Ayala Corp. announced the proposed merger in which its unit entered into an exchange note agreement for conversion shares with Air 21, its owner — former Customs chief Alberto D. Lina, and the eight companies in the network.
The conversion shares will result in at least a 60% stake in Air 21, which in turn controls Airfreight 2100, Inc., Air 2100, Inc., LGC Logistics, Inc., Cargohaus, Inc., U-Freight Phils., Inc., U-Ocean, Inc., Waste & Resources Management, Inc., and Integrated Waste Management, Inc.
The merger is the first transaction submitted for voluntary review by the parties under the Bayanihan To Recover As One Act (Bayanihan II) period with the increased threshold of P50 billion, the PCC said.
“The transaction, however, would have also qualified for regular review under pre-Bayanihan threshold conditions,” it added.
Once the Bayanihan II law expires in September this year, firms whose parent company assets exceed P6 billion and whose M&A transactions exceed P2.4 billion will once again be required to notify the PCC. — Revin Mikhael D. Ochave
THE proposed extension of safeguard measures is needed to help the recovery of local cement manufacturers, according to the Cement Manufacturers Association of the Philippines (CeMAP).
CeMAP Executive Director Cirilo M. Pestaño II said during a virtual public hearing led by the Tariff Commission (TC) on Wednesday that extending the safeguard measures on the importation of ordinary Portland cement Type 1 and blended cement Type 1P from various countries is “an important support that can be given to the domestic manufacturing industry.”
Mr. Pestaño said manufacturers are just starting to recover after the reopening of the economy.
“But this can all be compromised if the safeguard measures are not extended. This is a real important support that can be given to the domestic manufacturing industry considering the various contributions that we continue to provide to the country,” he said.
According to Mr. Pestaño, the local cement industry has been facing challenges with the rising prices of fuel, which is attributed to the ongoing conflict between Ukraine and Russia. The safeguard measures are set to expire in October this year. “Approximately 70% of the cost of manufacturing cement is accounted for by both fuel and power. And that has been affected by the Ukraine war,” he said.
“It is imperative that the safeguard measure is extended to allow the continuation of advancement plans that have been started by the domestic cement manufacturers and for them to be able to possibly invest more into the Philippines and create more jobs, contribute taxes, and deliver socioeconomic benefits to the particular communities where they operate,” he added.
John Reinier H. Dizon, Republic Cement & Building Materials, Inc. vice-president for strategy and business development, said that removing the safeguard measures would result in a spike in cement importation.
“I believe that if the safeguard measures are not extended, we anticipate an immediate further spike of cement importation into the country, to the detriment of domestic producers. We believe that the Philippines will be quite vulnerable to surge of imports immediately once the current safeguard duty is removed,” Mr. Dizon said.
“The current safeguard duty in place is P200 per ton. We are in the final year of the safeguard measures duty. Removing such duty of P200 per ton will cause an erosion of the prices of cement that we are currently producing. We are today, already in very challenging times,” he added.
Meanwhile, Indonesia Ministry of Trade Director of Trade Events Natan Kambuno said that the current safeguard measures implemented by the Philippines should not be extended.
He added that the Philippines imported 532,000 metric tons of cement from Indonesia from 2019 to 2021, while Vietnam cement imports reached 80% of overall Philippine cement imports.
In December last year, the Philippines’ Department of Trade and Industry (DTI) slapped anti-dumping duties on Vietnam cement imports after an investigation showed that it had caused injury to the local industry.
“The government of Indonesia believes that the existing safeguard measures should not be extended further. The expiring safeguard measures [should] be replaced with a more targeted anti-dumping trade measures so an extension of the safeguard measure will not be necessary or appropriate anymore,” Mr. Kambuno said.
“The government of Indonesia reserves its right to request rate compensation should the existing safeguard measure on imported cement is extended,” he added.
Recently, CeMAP disclosed that cement from Vietnam accounted for 6.466 million metric tons of cement imports out of the 7.107 million metric tons imported by the Philippines last year.
In 2019, the DTI issued Department Administration Order (DAO) 19-13 that implemented a safeguard measure on cement imports for a three-year period after it was found that there is a causal link between higher cement imports and threat of serious injury to the local cement industry. The safeguard duties ranged from P250 per ton in the first year of implementation, down to P200 per ton this year. — Revin Mikhael D. Ochave
ARQCAPITAL Partners, Inc. announced on Wednesday that it is planning to raise and deploy P1.5 billion in capital to around 20 to 50 small and mid-sized enterprises (SMEs).
“That’s the vision of ARQ. We are an SME focused investor. Our heart and vision is to serve this segment,” ARQCapital Founding Partner Edmund Solilapsi said in a virtual briefing.
ARQ SME Mezzanine Business Development Co. (ARQ SME BDC) was formed by ARQCapital in 2014, with the goal of being an SME-focused private mezzanine debt investor.
“We customize multi-product investment structures to fully service the critical growth stage of a promising medium enterprise,” Mr. Solilapsi said.
The firm focuses on “smart capital” investments in the private and alternative lending space.
“There are a few ‘smart capital’ investors in the Philippines today and this space has yet to be institutionalized,” he added.
Mr. Solilapsi said that the country’s financing market is dominated by banks and nonbank financial institutions, which are primarily passive capital providers and predominantly asset-backed.
“The private lending space is highly fragmented and is generally yield-driven with no clear thematic approach necessary in providing smart capital and creating an enabling environment for these enterprises,” he said.
“Venture capital firms focus on early-stage startups and tech-driven companies while private equity investors and strategic investors focus on larger investments and more mature enterprises,” he added. “This environment leaves SMEs with more traditional but similarly growing businesses uniquely challenged to find the right capital partner to fuel their growth.”
ARQCapital has invested approximately P1 billion in 33 firms since 2016 through its ARQ SME BDC and through co-investment partners.
For 2022, the company said it plans to fund 10 more mid-sized enterprises by yearend to add to its current portfolio of 22. It is also raising additional capital from development institutions to fund its investments. — Luisa Maria Jacinta C. Jocson
PHILJETS Aero Services, Inc. announced on Wednesday that it was appointed by Safran Helicopter Engines as a certified distribution center (CDC) in the country.
“We are thrilled and excited to officially become a CDC and thus work closely with Safran Helicopter Engines, a global engine manufacturer, to further boost proximity support in the Philippines for civilian operators,” Philjets General Manager Reginald J. Arguelles said in a statement.
The certification will allow the company to distribute its complete range of services, alongside spare parts, tooling, training, repair, overhaul, or standard exchanges.
“This partnership will allow Philjets Aero Services and Safran Helicopter Engines to strengthen their relationship to provide seamless support to existing and future civilian operators and owners in the Philippines,” Philjets Sales Supervisor Chressa T. Malicdem said.
Safran Helicopter Engines manufactures helicopter engines, with more than 75,000 produced since being founded. It offers helicopter turboshafts and has more than 2,500 customers in 155 countries.
Philjets is an aviation services company in the Philippines. The company deals with maintenance and support services, serving customers from general aviation, commercial airlines, maintenance and repair organization (MRO) companies, and government agencies.
The firm also has offices in the Philippines, Cambodia, Malaysia, Singapore, and soon in France.
Philjets aims to address and support the “growing needs of helicopters and jets, not only in the Philippines but also the ASEAN region. Its objective is also to raise the bar in delivering its wide-range of services — from aircraft acquisition, sales assistance, fleet management, and maintenance.” — Luisa Maria Jacinta C. Jocson
