April 20, 2019
Structural inflows could shield the Philippine economy from the negative impact of a trade war and drive the country’s credit ratings higher, an ING Bank Manila economist said.
“Given the dynamics akin to the Philippines, with aces in the form of steady OF (overseas Filipinos) remittances and BPO (business process outsourcing) receipts, the Philippines remains more insulated than regional peers even in light of the possible trade war,” ING Bank Manila senior economist Nicholas Antonio Mapa said in a report released earlier this week.
Mapa noted that remittance flows remained healthy, having hit P2.557 billion in February and bringing the year-to-date tally to $5.302 billion — 2.3 percent higher than the $5.182 billion registered in the comparable 2017 period.
“The steady stream of dollars help fund peso purchasing power, almost assuring that household consumption continues, while also augmenting the sustained struggles of the export sector,” he added.
The ING economist also highlighted the rapid expansion of the BPO industry, which “has delivered yet another ace up the Philippine external sleeve” given receipts totaling $10.4 billion in 2018, 21 percent higher than the year before.
By virtue of the remittances and BPO receipts boon, the Philippines can expect to always receive as much as $2.58 billion a month, Mapa claimed.
This will also build up the country’s gross international reserves (GIR), which the Philippines can utilize in times of distress to stabilize excessive demand for the dollar.
“The Philippines boasts a steady stream of FX (foreign exchange) flows and a healthy stockpile of reserves to boot, two things that not too many of our neighbors enjoy as well,” he added.
Mapa also stressed that the entire external dynamic of the Philippines indicated that it had more than enough dollar reserves.
“A cursory look at GIR tells shows the very crude and dated measure of import cover is currently at 7.3 months, which tells us that the Philippines can last up to 7 months still importing the same amount of goods should we not benefit from single cent worth of inflows,” he said.
Citing the latest GIR reading of $83.2 billion, Mapa pointed out that 138 months would have to pass before the Philippines completely runs out of reserves, “proving that GIR levels are more than enough to ensure stability.”
Given the strong external position of the Philippines even in light of the possible global slowdown, he said the Philippines could look forward to a possible ratings upgrade as economic growth remained relatively robust.
“If the government can help support the growth momentum and at the same time ensure the infrastructure build-up continues, we can expect ratings agencies to take notice sooner rather than later,” he added.
The Philippines currently enjoys investment-grade credit ratings from Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.
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