Globe services and assistance package for COVID-19 reaches P1.3 billion

June 22, 2020 | 4:36 pm

During the first three months of the pandemic, Globe Telecom was able to come up with over P1.3 billion in combined services and assistance package for COVID-19. This consists of support for Globe employees and vendor partners, services and promos, external fund-raising efforts, monetary and in-kind donations.

The bulk of the amount went to salaries and benefits which Globe continued to provide even to managed service partners and vendor employees to help ensure their safety, health, and well-being as well as their families. Globe currently holds weekly rapid antibody testing of all its frontliners and has contributed to the AC Health COVID-19 facility to accommodate its workforce and their families who may contract the virus.

The company has also provided food allowance, transportation, accommodation, insurance, and medical expense assistance to its critical skeletal workforce who kept back end operating systems including the Globe network fully operational during the enhanced community quarantine.

There were also numerous services and promos offered by Globe to assist both the government and its customers, ranging from toll-free hotlines and zero-rated access to select government websites and relevant apps, increased data allocation to customers, free unlimited WiFi services to hospitals, airports, and supermarkets, free or discounted access to work-from-home tools for businesses, free telehealth and mental health services, free preloaded mobile phones for hospital and government frontliners, and free SMS broadcast, among others.

In solidarity with its external and internal stakeholders, Globe launched donation drives to help frontliners, hospitals, and relevant government and non-government organizations. Millions of pesos were raised to purchase rapid antibody testing kits and personal protective equipment including face shields and face masks. Likewise, the company provided financial assistance for the conversion of the World Trade Center into a temporary healthcare facility and for the provision of relief packs for underprivileged communities.

“The impact of the pandemic to the world has been unprecedented. Yet we were able to test our resilience as an organization. Our digital-first, agile mindset and collaborative culture has helped us quickly overcome the initial shock from the community quarantine. Today we see a lot of Filipinos adopting to digital. This brings Globe at the forefront again, and our challenge this time is to make connectivity and consistent quality of experience as pervasive as possible,” said Ernest Cu, Globe President and CEO.

As restrictions ease up, Globe continuously looks for ways to make life easier for Filipinos who are still adjusting to the new normal. The company is making inroads with 917 Ventures, its wholly-owned subsidiary and the largest corporate incubator in the Philippines that provides services beyond connectivity. For instance, KonsultaMD telehealth services are now offered both through calls and video for medical consultation anytime and anywhere. For financial inclusion, GCash has extended its services to cater not only to online payments but also providing better than bank rate savings and lending facilities all in the same app.

Globe aligns its actions with United Nations Sustainable Development Goals No. 3 on good health and well-being, No. 8 on decent work and economic growth, No. 9 on industry, innovation and infrastructure, and No. 17 on partnerships for the goals.

For more information about Globe, visit www.globe.com.ph.

Helping MSMEs adapt to the new normal

June 22, 2020 | 4:00 pm

AMTI offers digital solutions to boost MSMEs

“MSMEs are the backbone of the Philippine society for job creation and economic contribution. They have to digitalize and use technologies to create new ways of doing business,” said AMTI EVP for Technology, Sales and Marketing Bong M. Paloma.

Clearly, being the backbone of the Philippine economy, micro, small and medium enterprises (MSMEs) deserve the utmost attention during this crisis. This is why AMTI, one of the leading technology companies in the country today, has put together appropriate digital solutions using new technologies so that affected MSMEs can reinvent their business models.

Digital technology has provided the means for many businesses to continue operating despite the imposed nationwide community quarantine. Remote work has become commonplace, and many businesses are learning of the opportunities that e-commerce, digital marketing, and other digital solutions are offering them.

AMTI has committed to working with various financial channels to facilitate easy access to the Philippine Guarantee Corporation credit guarantee program so they can acquire the digital bundled solution. By leveraging digital tools and technologies, MSMEs can now actively participate in the commerce of the new normal and would have the necessary tools to ensure their medium and long-term survival.

“MSMEs are the pathfinders during the journey to an economic recovery,” Mr. Paloma said. “AMTI, together with their ecosystem of technology partners, will put together affordable and innovative offerings to help MSMEs pivot their business ventures to adopt digital technologies and enable their customers, partners and the local community to survive and thrive in the long term. In doing so, it aims to help turn this crisis into opportunities with proper motivation, determination and purpose.”

AMTI, a more than two-decade-old organization, is one of the biggest, trusted, and most diversified ICT companies in the Philippines and is likewise a long-time partner of Dell Technologies. It provides Workforce Transformation solutions to help companies address their pain points and deliver their desired business outcomes.

Talk to AMTI now to help you analyze your current workforce situation and remote work readiness and to come up with recommendations and solutions tailored for your business. Send your inquiries at inquiries@amti.com.ph.

JPMorgan says investors should be more selective in second half

June 22, 2020 | 4:00 pm

Investors should be more selective in the next six months as asset returns are likely to diverge because liquidity “cannot paper over specific weaknesses indefinitely,” according to JPMorgan Chase & Co.

An “indiscriminate approach” to a portfolio would largely have worked in April and May, when most financial assets rallied — a typical result at a turning point in the cycle, according to strategists led by John Normand in a June 19 note. They cited extreme positioning and liquidity dynamics, plus central-bank asset purchases, as contributing to increased correlations when economies enter recessions and then move to expansions.

“But typically these high correlations mean-revert to their long-term averages within a few months, in part because the pace of quantitative easing slows and in turn allows country, sector and company-specific factors to reassert themselves,” the strategists wrote. The second half of 2020 “should bring this sort of differentiation.”

JPMorgan’s recommendations for the second half of 2020 include:

• In bonds, take duration risk only in countries with positive inflation-adjusted yields and limited concerns about debt sustainability

• Favor high-grade credit over high yield on default-rate concerns

• Pick developed over emerging-market corporate debt; many EMs outside north Asia face bigger challenges managing public-health and debt sustainability issues

• In stocks, choose Covid-19 “endgame winners” such as technology, communications and health care, as opposed to a broad preference for cyclicals or defensive shares

• Sell the US dollar versus G-10 currencies with strong current-account positions like the Swedish krona or Japanese yen, and EM currencies with high real yields like the Mexican peso, Russian ruble, and Indonesian rupiah

• Stick with gold among commodities as it’s most leveraged to a low real-yield environment, and to agriculture, the cheapest market

— Bloomberg

Asia’s wealthiest man joins club of world’s 10 richest

June 22, 2020 | 3:10 pm

Asia’s richest man has entered a new league of wealth.

The net worth of Mukesh Ambani, chairman of Reliance Industries Ltd., has jumped to $64.5 billion, making him the only Asian tycoon in the exclusive club of the world’s top 10 richest people, according to the Bloomberg Billionaires Index. He overtook Larry Ellison of Oracle Corp. and France’s Francoise Bettencourt Meyers, the wealthiest woman, to reach the No. 9 spot.

Mr. Ambani, who owns 42% of Reliance, has benefited from a flurry of investment into the company’s digital unit, Jio Platforms Ltd., that Reliance said has made it net-debt free ahead of a March 2021 target. The shares of the Indian conglomerate have doubled from a low in March, just as other billionaires on the list have been hit by the impact of the coronavirus pandemic. They climbed another 1.2% as of 9:37 a.m., Monday, in Mumbai.

While the Indian economy “has been nearly decimated” during the lockdown to control the spread of COVID-19, “Mr. Ambani’s companies (particularly the telecom giant Jio) have prospered, and his personal wealth has increased substantially,” said Jayati Ghosh, chair of the Centre for Economic Studies and Planning at the Jawaharlal Nehru University.

A media representative for Reliance declined to comment on Ambani’s fortune.

ECONOMIC DIVIDE
The rise of the 63-year-old as India heads for its worst-ever recession is a reminder of the nation’s deep economic divide, in which the top 10% hold more than three-quarters of the total wealth, and where most new fortune creation stays in the hands of the richest 1%. Mr. Ambani lives in a 27-story mansion in Mumbai, known as Antilia, that has three rooftop helipads, parking for 168 cars, a 50-seat movie theater, a grand ballroom with crystal chandeliers, three floors of Babylon-inspired hanging gardens, a yoga studio, and a health spa and fitness center.

While a crash in oil prices caused uncertainty in a stake sale of Reliance’s oil and chemicals division, in just two months Jio managed to attract some $15 billion — more than half the investment into telecom companies worldwide this year. Facebook Inc., General Atlantic, Silver Lake Partners, KKR & Co., and Saudi Arabia’s sovereign wealth fund are among those trying to get a slice of one of the world’s fastest-growing online commerce markets. A June report by Sanford C. Bernstein predicted that Jio is likely to capture 48% of India’s mobile subscriber market share by 2025.

In the latest potential deal slated to bolster Mr. Ambani’s e-commerce ambitions, Reliance is close to acquiring stakes in some units of Future Group, which already has a partnership with Amazon.com Inc., people familiar with the matter have said.

Mr. Ambani got his start in the family’s business in the early 1980s, when his father, Dhirubhai Ambani, summoned him back to India to oversee construction of a polyester mill after a year at Stanford Business School. The Ambanis began to buy up suppliers as well as petrochemical plants and oil refineries and eventually built the company into a fabrics-textiles-and-energy empire. Dhirubhai died of a stroke in 2002 without leaving a will, triggering a feud between Mukesh and his brother, Anil.

In a settlement brokered by their mother, the brothers split the family business. Mukesh retained control over the refining, petrochemicals, oil and gas, and textiles operations, while Anil took the telecommunications, asset-management, entertainment and power-generation businesses. In 2013, the brothers announced a $220 million pact to share a fiber-optic network, their first deal since splitting the Reliance empire. Parts of Anil’s operations have since struggled, with a unit of his Reliance Communications Ltd. filing for bankruptcy last year.

Mukesh revels in being the biggest. In India, Reliance officially became just that last year, when it surpassed state-owned Indian Oil Corp. to become the country’s largest company by revenue. At Reliance’s annual shareholder meeting in August, which is covered like a national event — including by its media and entertainment arm, Network18 — Ambani called it the “golden decade of Reliance.” He celebrated the group’s growing list of superlatives: the largest telecom enterprise by subscribers, revenues, and profit; a retail arm larger than all other major retailers combined; an oil giant that makes India’s largest export.

“We are also incubating newer growth engines,” Mr. Ambani said at the time, adding that he hoped the digital-driven expansion could be more inclusive. “No power on earth can stop India from rising higher.”

At least on the global wealth ranking, that seems to be the case. — Bloomberg

Wirecard says missing $2.1B likely does not exist; withdraws results

June 22, 2020 | 11:51 am

Wirecard AG on Monday said there was a likelihood that the 1.9 billion euros ($2.13 billion) reported missing from its accounts simply did not exist in the first place.

The scandal-hit German payments firm said it was also withdrawing its full-year 2019 and first-quarter 2020 financial results. “The Management Board of Wirecard assesses on the basis of further examination that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist,” the company said in a statement. Additionally, the company said it is examining a range of possible measures to ensure continuation of its business operations, which include cost reductions, restructuring, disposal or termination of business units.

Chief Executive Officer Markus Braun quit on Friday as the company’s search for $2.1 billion of missing cash hit a dead end in the Philippines and as it scrambled to secure a financial lifeline from its banks.

The central bank of Philippines said on Sunday that none of the $2.1 billion missing from Wirecard appeared to have entered the Philippine financial system. On Thursday, auditor Ernst & Young (EY) refused to sign off the German company’s 2019 accounts over the missing amount. The auditor was unable to confirm the existence of that amount in cash balances on trust accounts, representing about a quarter of Wirecard’s balance sheet, the payments company said on Thursday.

In-house auditor EY had regularly approved Wirecard’s accounts in recent years, and its refusal to sign off for 2019 confirmed failings found in an external probe by KPMG in April.

Wirecard, which has long been a target of short sellers who have questioned its financials, said on Friday it may be the victim of “fraud of considerable proportions”. — Reuters

[B-SIDE Podcast] Artificial intelligence: the key to a thriving post-pandemic economy

June 22, 2020 | 9:06 am

Artificial intelligence (AI) may be the key to helping the Philippine economy get back on its feet. Without sufficient technology and automation in place, high-touch human operations are paralyzed. As the world recovers, it will require a re-imagination of human and business processes to future-proof against the next crisis.

In this episode, BusinessWorld reporter Jenina P. Ibanez speaks with Dong Shou, co-founder and chief operating officer of ADVANCE.AI, an artificial intelligence and big-data company headquartered in Singapore.

TAKEAWAYS

AI is essential to the digital transformation of a business.

AI — specifically optical character recognition (OCR, which converts images of typed, handwritten or printed text into machine-encoded text), facial recognition, natural language processing, along with big data analysis — can aid the digital transformation of traditional offline businesses by automating processes and improving productivity.

These technologies also allow machines to sort through big data and improve contactless customer experience.

Imagine walking into a bank without having to present any sort of identification to complete a transaction since you’ve already been vetted by the bank’s facial recognition system.

“Digital transformation is a process. It takes time. You don’t have to go from the beginning to the end in one big step. You can take small steps along the way to your big goal,” said Mr. Shou.

In 2019, the Department of Trade and Industry (DTI) began drafting the government’s AI roadmap with the help of data scientists. Mr. Shou’s recommendations include upgrading national infrastructure in order to move to 5G networks from 4G; improving national education and emphasizing STEM (science, technology, engineering, and mathematics); supporting digital startups and entrepreneurs and allowing them to experiment in a regulatory sandbox; fostering a friendly investment climate; and committing public and private support to educate the current workforce.

The shift to digital must be accompanied by increased data security.

Data must be used for clear and specific purposes. For example, respect for patient confidentiality must be maintained even in the online world. Systems must be tested rigorously before they are deployed and government must set up regulations to prevent bad actors from abusing personal data.

BPOs and other labor-intensive industries must upskill and retrain their people.

Given that the pandemic forced global multinational corporations to reduce their offshore operations, BPOs must upskill and retrain their people, who, in turn, must learn to work with AI systems. “Being able to speak good English, especially for the Philippines, is no longer a big advantage because now we have chatbots which can do the work faster with lower cost,” said Mr. Shou. Released from rote tasks, human beings can focus their energies on high-value tasks that require creativity and critical thinking.

Recorded remotely on April 20. Produced by Nina M. Diaz, Paolo L. Lopez, and Sam L. Marcelo.

Philex Mining sets virtual annual stockholders’ meeting on July 15

June 22, 2020 | 8:00 am

PHILEX MINING CORPORATION
Notice of 2020 Annual General Stockholders’ Meeting

TO OUR STOCKHOLDERS:

Please be informed that the Annual General Stockholders’ Meeting (“AGM” or the “Meeting”) of PHILEX MINING CORPORATION (the “Company”) will be held on Wednesday, 15 July 2020 at 4:00 p.m., and will be presided at TV 5 Media Center, Reliance St. Mandaluyong City. The meeting will be conducted virtually, and attendance at the meeting will be via remote communication only.

The order of business at the Meeting will be as follows:

Call to Order;
Proof of required notice of the meeting;
Certification of quorum;
Reading and approval of the Minutes of the 26 June 2019 annual stockholders’ meeting and action thereon;
Presentation of annual report and audited financial statements for the year ended 31 December 2019 and action thereon;
Ratification and approval of the acts of the Board of Directors and Executive Officers during the year 2019;
Appointment of independent auditors;
Election of directors, including independent directors;
Other matters;
Adjournment.

For purposes of the Meeting, only stockholders of record as of the close of business on 8 April 2020 are entitled to notice of, and to vote at, the Meeting.

The Definitive Information Statement for the Meeting is posted on the Company’s website. To access the Definitive Information Statement, with the attached Management Report, Audited Financial Statements for the period ended 31 December 2019 and Proxy Form, please go to (http://www.philexmining.com.ph/).

Attendance via remote communication. Stockholders who will attend the Meeting should email the Corporate Secretary at bcmigallos@philexmining.com.ph not later than 5 July 2020. Certificated shareholders must indicate in the email their Stockholder ID number and submit a scanned copy of a valid current government ID. Uncertificated shareholders (shareholders who hold their shares through a PCD Nominee account), should submit a certification from their broker attesting that the stockholder is the beneficial owner of shares of stock of the Company (the number of shares must be indicated) and a valid government ID.

Clarificatory questions regarding attendance via remote communication maybe sent via email to bcmigallos@philexmining.com.ph.

Stockholders can be represented and vote at the Meeting by submitting the said proxy by email to bcmigallos@philexmining.com.ph or by sending a physical copy to the Office of the Corporate Secretary at the Company’s principal office at 2/F LaunchPad, Reliance corner Sheridan Streets, Mandaluyong City, Metro Manila. The deadline for submission of proxies is 5 July 2020. Proxy validation will be on 8 July 2020 at 10:30 a.m. at the Company’s office address indicated above.

On-line voting. Secured on-line or electronic voting will be available for stockholders. Stockholders who have pre-registered attendance via remote communication may vote online by logging on to http://www.philexmining.com.ph/investor-relations/vote-online to cast their votes. On-line voting instruction are attached to the Notice as Annex “B”. On-line voting will close at 12:00 noon on 13 July 2020.

Open Forum. There will be an Open Forum during the Meeting. Stockholders who will attend via remote communication should send their questions via email to bcmigallos@philexmining.com.ph on or before 12:00 noon of 13 July 2020.

PXP Energy sets virtual annual stockholders’ meeting on July 15

June 22, 2020 | 8:00 am

PXP ENERGY CORPORATION
(formerly Philex Petroleum Corporation)

Notice of Annual General Stockholders’ Meeting

Please be informed that the Annual General Stockholders’ Meeting (“AGM” or “Meeting”) of PXP ENERGY CORPORATION (the “Company”) will be held on Wednesday, 15 July 2020 at 1:30 p.m., and will be presided at TV 5 Media Center, Reliance St., Mandaluyong City. The meeting will be conducted virtually, and attendance at the meeting will be via remote communication only.

The order of business at the Meeting will be as follows:

Call to Order;
Proof of required notice of the meeting;
Certification of quorum;
Reading and approval of the Minutes of the 21 May 2019 annual stockholders’ meeting and action thereon;
Presentation of annual report and audited financial statements for the year ended 31 December 2019 and action thereon;
Ratification and approval of the acts of the Board of Directors and Executive Officers during the year 2019;
Appointment of independent auditors;
Election of directors, including independent directors;
Other matters;
Adjoiurnment

For purposes of the Meeting, only stockholders of record as of the close of business on 12 March 2020 are entitled to notice of, and to vote at, the Meeting. The Definitive Information Statement with the attached Management Report, SEC Form 17-A with the Audited Financial Statements for the period ended 31 December 2019, and the Minutes of the Annual General Stockholders’ Meeting of the Company held on 21 May 2019 may be accessed at the Company’s website https://www.pxpenergy.com.ph/.

The Meeting will be via remote communication only. Stockholders who will attend the Meeting should email the Corporate Secretary at bcmigallos@pxpenergy.com.ph on or before 5 July 2020. Certificated shareholders must indicate their Stockholder ID number and submit a scanned copy of a valid current ID. Uncertificated shareholders (shareholders who hold their shares through a PCD Nominee account), should submit a certification from their broker attesting that the stockholder is the beneficial owner of shares of stock of the Company (the number of shares must be indicated) and a valid current ID. Clarificatory questions regarding attendance via remote communication may be sent via email to bcmigallos@pxpenergy.com.ph.

Once the Company successfully verifies the stockholder’s status, the Company will reply to each stockholder with (1) a link through which the Meeting may be accessed; and (2) with an online ballot or SECURITY CODE to be used for online voting. Questions relating to the Meeting materials may also be sent to bcmigallos@pxpenergy.com.ph on or before on or before 12:00 noon of 13 July 2020. Due to time considerations, questions that will not be addressed at the Meeting will be responded to via email.

Proxies. A proxy form that is compliant with the requirements of the Securities and Exchange Commission is attached to the Definitive Information Statement. Stockholders can be represented and vote at the Meeting by submitting the said proxy by email to bcmigallos@pxpenergy.com.ph or by sending a physical copy to the Office of the Corporate Secretary at the Company’s principal office at 2/F LaunchPad, Reliance corner Sheridan Streets, Mandaluyong City, Metro Manila. The deadline for submission of proxies is 5 July 2020. Proxy validation will be on 8 July 2020 at 10:30 a.m. at the Company’s office address indicated above.

On-line voting. Secured on-line or electronic voting will be available for stockholders. Stockholders who have pre-registered attendance via remote communication may vote on-line by logging on to https://www.pxpenergy.com.ph/agmvote2020/ to cast their votes. On-line voting instruction are attached to this Notice as Annex “B”. On-line voting will close at 12:00 noon on 13 July 2020.

Open Forum. Stockholders should send their questions via email to bcmigallos@pxpenergy.com.ph on or before 12:00 noon of 13 July 2020. Officers of the Company will endeavor to answer all questions during the Meeting.

Wirecard’s $2.1B did not enter PHL — BSP

June 22, 2020 | 12:34 am

THE $2.1 billion missing from German payment company Wirecard AG did not enter the country’s financial system, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Sunday.

“None of the missing $2.1 billion of German firm Wirecard entered the Philippine financial system,” Mr. Diokno said in a text message.

Wirecard’s share price nosedived last week after it was reported that about 1.9 billion euros ($2.1 billion) of its funds had gone missing. Chief Executive Markus Braun, who blamed the company’s problems on fraud, quit on Friday.

While Wirecard did not mention where the missing money allegedly went, BDO Unibank, Inc. (BDO) and Bank of the Philippine Islands (BPI) on Friday issued separate statements denying any business relationship with the German company.

Mr. Diokno said BDO and BPI did not suffer any losses, but the central bank is conducting its own investigation into the matter.

“The initial report is that no money entered the Philippines and that there is no loss to both banks,” he said. “The international financial scandal used the names of two of the country’s biggest banks — BDO and BPI in an attempt to cover the perpetrators’ track.”

BPI and BDO said they had informed Ernst and Young, which serves as external auditor for Wirecard, that bank documents pertaining to the presence of the funds were “spurious.”

BPI, however, told Reuters on Saturday it had suspended an assistant manager whose signature appeared on one of the fraudulent documents.

BDO also told the central bank that it appeared one of its marketing officers had fabricated a bank certificate.

Mr. Diokno reiterated the Philippine banking system was in a strong position going into the coronavirus pandemic and well-capitalized.

DOUBT LINGERS?
Economists said BSP’s latest statement will come as a relief to Philippine banks and investors, although some doubts may linger.

“With the latest clarifications from the BSP that none of Wirecard’s missing funds entered the Philippine financial system, this issue would have minimal impact in terms of international investor sentiment on the Philippines,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

While the issue is unlikely to affect market sentiment, Ateneo de Manila University economist Alvin P. Ang said it is “alarming that the Philippine banks are targeted.”

For his part, Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez said a “cloud of doubt lingers in the mind of the business community” despite statements from the local lenders that they do not have business relationships with Wirecard.

“The integrity of the financial system has once again been put to test. This sends a strong signal to the Legislature that safety measures must be in place to put the integrity of the financial system in place,” he said.

The Philippines is facing the possibility of being included in a “gray list” of economies with lax laws on anti-money laundering and counter-terrorism financing, if it fails to amend existing laws.

The Financial Action Task Force (FATF) had placed the Philippines under a 12-month observation period, originally scheduled to end in October but was extended to February 2021. During this time, the Philippines has to address the gaps identified in the Republic Act No. 9372 or the Human Security Act of 2007 and the Anti-Money Laundering Act of 2001 (AMLA).

The proposed Anti-Terror Act, which amends the Human Security Act, is currently awaiting President Rodrigo R. Duterte’s signature.

Proposed amendments to AMLA, which are also relevant to the FATF assessment, have yet to advance beyond the committee level at both the House of Representatives and the Senate. — Luz Wendy T. Noble with Reuters

Credit raters to keep close eye on PHL recovery

June 22, 2020 | 12:33 am

Passengers stand on social distancing markers as they queue to enter a train station in Manila, June 1. — *REUTERS*

By Luz Wendy T. Noble, Reporter

THE country’s pace of recovery after the crisis will be a key consideration in sovereign rating assessment, according to credit raters.

“Against this backdrop, our sovereign ratings will be not solely be determined by the immediate impact on credit metrics this year, but also the extent to which a country’s fundamentals can be restored towards their pre-coronavirus shock levels over the medium-term,” Christian de Guzman, senior vice-president of sovereign risk group at Moody’s Investors Service, said in an e-mail.

In May, Moody’s affirmed the country’s “Baa2” rating, a notch above minimum investment grade, and kept a stable outlook.

The debt watcher projects the country’s gross domestic product (GDP) to contract by 2% this year, before bouncing back to a 6.4% growth in 2021.

As the fallout from the pandemic widens, the government estimates GDP to shrink by 2-3.4% this year, after 6% growth in 2019.

Sagarika Chandra, associate director for sovereign ratings — APAC (Asia Pacific) at Fitch Ratings, said their “stable” outlook for the Philippines assumes a decline in fiscal deficit from 2021 onwards when the crisis subsides and the economy recovers.

A “stable” outlook signals that a country’s credit rating is likely to be maintained within the next six months to two years. Fitch has downgraded the Philippine outlook to “stable” in May from the “positive” outlook it gave in February, after factoring in the economic impact of the pandemic. On the other hand, it has affirmed its “BBB” credit rating.

Fitch estimates the country’s economic output to contract by 4% this year, and to grow by 7.4% in 2021.

“However, failure to successfully consolidate the deficit and bring down debt levels once the pandemic recedes could be negative for the credit rating,” Ms. Chandra said in an e-mail to BusinessWorld.

The national government’s budget balance stood at a deficit of P273.9 billion as of April, a reversal from the P86.9-billion surplus a year ago and wider than the P59.5-billion deficit in March, data from the Bureau of the Treasury showed.

Amid the crisis, the government projects the budget to reach 8.4% of GDP this year. In 2019, the country’s fiscal deficit was at P660.2 billion or 3.55% of GDP.

Meanwhile, the government expects debt-to-GDP to rise to 49.8% this year from the revised end-2019 level of 39.6%.

Ms. Chandra said Fitch expects “BBB” sovereigns to see a general government debt-to-GDP ratio median of 52.6% this year from 42.9% in 2019. She expects the Philippines will see a ratio lower than its peers despite a projected increase in fiscal deficit.

“This reflects the fact that the Philippines entered the coronavirus crisis with relatively more fiscal space to address the economic downturn than many of its ‘BBB’ peers,” she said.

Ms. Chandra added their credit assessment also puts an emphasis on debt trajectory over the medium term rather than fiscal deficit level in a single year.

Moody’s Mr. De Guzman said they are banking on the country’s track record in the past years.

“Given the Philippine government’s track record over the past decade with regards to fiscal management, we expect that the cyclical shock posed by the coronavirus does not represent a permanent departure from the trend improvement in fiscal sustainability,” he said.

Aside from fiscal deficit and debt metrics, Fitch’s Ms. Chandra said their credit assessment will also look into vital metrics that include dollar reserves, tax reforms, and some structural indicators.

Central bank data showed gross international reserves reached an all-time high of $90.942 billion as of end-April, providing ample cover for eight months of imports of goods.

Meanwhile, the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), which provides for the immediate reduction of corporate income tax to 25% from the current 30%, is still pending at the Senate. Congress resumes session in late July.

Ms. Chandra noted the Philippines’ “general government revenues are still weaker than the peer median.” The country’s structural indicators also lag behind peers, including per capita income, governance standards and human development, she said.

The Japan Credit Rating Agency recently upgraded the country’s credit rating to “A-” with a “stable” outlook, saying it expects the pandemic’s impact on the economy will only be temporary.

Meanwhile, S&P Global Ratings affirmed its “BBB+” rating as well as its “stable” outlook for the Philippines in late May.

Reopening the economy: Economists identify sectors to be prioritized

June 22, 2020 | 12:32 am

Extra dining tables are placed to maintain social distancing in restaurants in Mandaluyong City, June 16. — *REUTERS*

By Marissa Mae M. Ramos, Researcher

AS QUARANTINE restrictions ease around the country, a group of economists identified key industries that should be prioritized in reopening and securing assistance, based on their impact on the rest of the economy.

In an unpublished paper titled “Prioritizing Sectors of the Philippine Economy,” economists Cid L. Terosa and Peter L. U from the University of Asia and the Pacific used the statistics agency’s 2012 input-output tables to rank industries based on their respective “multipliers” to the economy.

According to the economists, most of the top-ranked industries are related to consumer spending and production of services. These include food manufacture, accommodation and food services, public administration, and construction.

“All sectors have been hurt by the pandemic, some more and others less. This paper proposes using output multipliers adjusted for demand and employment impact from the input-output table to gauge what industries have relatively more economic impact and merit prioritizing in terms of earlier reopening, or possible assistance,” the economists said.

In this context, a “multiplier” refers to the degree that a sector’s additional output affects the output of other sectors in the economy. Released in 2017, the 2012 Input-Output tables are the latest data available that show interrelationships of production between sectors.

“The idea behind it is simply that every industry uses as inputs the products or outputs of some other industries in the economy. Each industry must produce enough of its output to meet the requirements of other industries’ need for it as inputs to their own respective production activity (or intermediate demand), and that of households and government for final consumption, businesses for investment spending, and demand from outside the country (exports),” the economists said.

One approach in identifying the more important sectors in an economy is to look at “output” multipliers. “[I]f the demand for the product of a sector were to increase (and be satisfied), by how much would the output of all sectors in the economy increase?…All things equal, we would instinctively prioritize a sector with a greater output multiplier over another,” they added.

As output multipliers are limited to the production side and thus may not represent what is demanded in the economy, the authors further adjusted these to account for each of the sector’s share to total domestic consumption as well as their “labor intensiveness.” They called these the demand-employment (D-E) adjusted global multipliers.

TOP-RANKED SECTORS
Based on the economists’ findings, the following ranked high on the list: food manufactures; accommodation and food service activities; public administration and defense, compulsory social security; construction; wholesale and retail trade; and maintenance and repair of motor vehicles.

“Not surprisingly, [the] Food Manufactures sector ranks the highest. This coincides with and reinforces the IATF’s (Inter-Agency Task Force) inclusion of food among the initial list of essential businesses,” the economists said.

On the other hand, they said most of the agricultural sectors, which presumably provide raw materials for food manufacturing, are ranked low. “This is because the agricultural sectors are typically at the start of their respective supply chains. Thus, they would not stimulate much backward linkage activity,” they said.

While the findings suggest giving priority to high-ranking sectors, Messrs. Terosa and U cautioned these figures were “predicated on the assumption that all sectors in the economy are operating under normal conditions.” They cited several of the high-ranking industries are now challenged by physical distancing measures.

For instance, the backbone wholesale and retail trade sector was stifled by the closure of malls and other retail establishments. With the easing of lockdowns, hotels and restaurants are only allowed to operate at limited capacity.

“Even if hotels were allowed to open up again, it would likely not see a lot of foreign travelers as air travel worldwide remains mostly grounded. It would have to rely solely on domestic tourism,” they said.

The economists also cited the high ranking of the construction industry. “Former NEDA (National Economic and Development Authority) Secretary Ernesto M. Pernia had reportedly voiced his disagreement in locking down even construction in priority government infrastructure projects. [The rankings] would support the move to allow construction activity to reopen in the GCQ (general community quarantine),” they said.

Other high-ranking sectors include other service activities; transport equipment; education; arts, entertainment, and recreation; banking institutions; and, computer, electronic and optical products.

CAVEAT
Aside from the dated nature of the 2012 Input-Output tables, the economists noted further caveats in reading into the multiplier rankings.

“It is tempting to interpret [the rankings] as a formula for sequential reopening of sectors in the economy but one must be careful. A sector in the top 10… might not be able to be productive because a lower ranked sector has not been allowed to operate or is severely constrained. Policy makers would have to make a judgment whether the lower ranked industry might also have to be allowed to operate to allow the higher ranked to make its impact,” Messrs. Terosa and U said in an e-mail response to BusinessWorld.

“Similar to the adage ‘No man is an island,’ so also is no industry an island; for all industries are interrelated with each other in an economy. Admittedly, some are more interrelated than others and those that are more interrelated usually end up having more impact on an economy,” they added.

Nevertheless, the economists hoped policy makers can use the multiplier’s rankings as “an initial guide” in prioritizing sectors to prepare for the so-called new normal.

The entire Luzon island was locked down in mid-March, with work, classes, and public transportation suspended to contain the pandemic. The strict quarantine was extended twice for the island and thrice for Metro Manila where reported cases of infections were mostly concentrated.

The lockdown in Metro Manila was eased to a general lockdown on June 1, which was extended until June 30.

Which sectors of the Philippine economy merit prioritizing in reopening or giving assistance?

June 22, 2020 | 12:32 am

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