THE PHILIPPINE government should carefully balance the need to support the economy’s recovery, while maintaining price stability, the International Monetary Fund (IMF) said.

“While the recovery is expected to strengthen in 2022, the authorities will need to carefully balance the policy mix to provide adequate support to the recovery while ensuring price stability,” Cheng Hoon Lim, IMF mission chief for the Philippines, said in an e-mail last week.

The IMF last week raised its 2022 growth projection for the Philippines to 6.5% from the 6.3% forecast given in January. However, this is lower than the government’s 7-9% target for this year.

“Monetary policy can remain accommodative in the short term, provided inflation expectations remain well-anchored,” Ms. Lim said.

The Bangko Sentral ng Pilipinas (BDP) has kept policy rates at a record low to boost the economy’s recovery, but has signaled rate hike adjustments in the second half of 2022.

The Monetary Board now expects inflation to breach the target at 4.3% for 2022 from 3.7% previously, citing the surge in oil and commodity prices due to the Russia-Ukraine war.

At the same time, Ms. Lim said the government should also proceed with its fiscal consolidation plan, “while continuing to fund health-related programs and providing cash transfers or subsidies for the hardest-hit sectors.”

The government is currently working on a fiscal consolidation plan, after the budget deficit widened during the pandemic.

In 2021, the budget deficit reached P1.7 trillion, equivalent to 8.61% of gross domestic product (GDP). For this year, the government’s budget deficit cap is at P1.65 trillion, which is equivalent to 7.7% of GDP.

The Philippines ended 2021 with P11.73 trillion in outstanding debt, pushing the debt-to-GDP ratio to a 16-year high of 60.5%. This is higher than the 60% threshold considered manageable by multilateral lenders for developing economies.

The IMF in a blog dated April 20 said governments recovering from the pandemic are confronted with the need for agile fiscal policies to address the spike in food and fuel prices.

“Governments face difficult choices in this highly uncertain environment. They should focus on the most urgent spending needs and raise revenue to pay for them,” it said.

Ms. Lim said policy support should be focused on ensuring inclusive and sustainable recovery.

“The planned introduction of the national ID system and implementation of the financial inclusion initiative would complement the social assistance programs by facilitating the identification of eligible households and delivery of cash aid,” she said.

More than 60 million Filipinos have already completed the second step of the registration for the national ID as of March — which include the capturing of biometric information.

Ms. Lim also stressed the need for the government to continue investing in education and infrastructure.

“Progress in the digitalization of public services and improving digital and physical connectivity throughout the Philippines’ archipelago would be another important pillar to bolster growth prospects,” she said. — L.W.T.Noble

CONSUMER GOODS and food manufacturing businesses in the Philippines will likely be the most affected by a potential price shock in oil and commodities if the Russia-Ukraine war escalates, analysts said.

The Philippines is currently affected by the Russia-Ukraine war mainly through the surge in oil and food prices, and supply chain disruptions, Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“More significant to the Philippines is that Russia and Ukraine are major commodities producers, with wheat from both countries accounting for around 30% of global exports, and thus making food production input costs jump globally,” Mr. Roces said in a Viber message.

First Metro Investment Corp. Head of Research Cristina S. Ulang said food processing firms that heavily rely on imported raw materials and some power generation companies will be hurt by rising costs.   

“Strains [are] evident in gross profit margin compression, and pressure to increase prices versus competition, which can weaken sales volume and capacity utilization,” Ms. Ulang said in a Viber message.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion in a Viber message said industries like transport and manufacturing that use petroleum will also bear the brunt.

Mr. Asuncion said micro, small and medium enterprises (MSME) that are dependent on transport to sell their goods will also be affected by the higher fuel prices.

Headline inflation jumped to a six-month high of 4% in March, already matching the upper end of the central bank’s 2-4% target band. This reflected the surge in global oil prices since the war started on Feb. 24.

Latest data from the Department of Energy showed gasoline, diesel, and kerosene prices increased by P15.45, P27.35, and P21.55 per liter since the year started.

Mr. Roces said oil traders and energy-generating companies are more “vulnerable in the sense that inputs are more costly.”

“Commodity traders, notably steel, cement, fertilizers are also risking costly inputs. Same with flour and wheat importers as well as freight/cargo organizations,” he added.

Mr. Roces said the war has dampened global business confidence and created more investor uncertainty, which will weigh on asset prices and may potentially drive capital outflows from emerging markets.

On the other hand, the war in Ukraine may present opportunities for some industries.

Mr. Asuncion said potential “winners” include companies that are “high on electric-based products or ones seeing potential in renewable energy; firms with production not skewed to petroleum-based inputs.”

Coal, nickel and gold miners are also among potential winners, Ms. Ulang said.

Global supply has faced disruption due to the war as Russia is a major exporter of metals.

In a note on Monday, Moody’s Investors Service said nonfinancial companies in Asia-Pacific may face deepening risks caused by rising prices and economic disruption as the war in Ukraine escalates.

“The credit implications for companies depend on their direct exposure to each channel, and their capacity to mitigate shocks,” Moody’s said.

Moody’s noted that a quarter of rated Asia-Pacific companies will likely be at risk in case of a global recession and a severe liquidity squeeze in case of a prolonged war.

“A small number of rated companies face material credit pressure under our baseline scenario because of refinancing risks amid current market volatility. However, under a more severe downside scenario, more than 27% are vulnerable, particularly speculative-grade companies and those with limited balance-sheet buffers or exposed to a supply chain shock,” Chris Park, a Moody’s associate managing director, said in a statement. — L.W.T.Noble