The Philippines is resilient in the face of external risks arising from the recent developments in the Chinese stock markets, owing in part to decisive responses from the People’s Republic of China and to the Philippines’ own macroprudential safeguards. The country continues to bolster its resiliency against the vicissitudes of the global economic landscape, remaining resilient as demonstrated by its insulated position relative to recent developments in Greece and China.
Department of Finance Chief Economist Undersecretary Gil S. Beltran said, “Strong macroeconomic fundamentals and a market-based framework differentiate the Philippines. The market recognizes the sound economic stewardship and deep-seated reforms over the past 5 years, shielding the economy from external shocks and bolstering domestic demand buoying the economy.
The Philippine government remains committed to boosting financial resiliency. We continue to advance measures in fora such as the Asia Pacific Economic Cooperation (APEC) Finance Ministers’ Meetings (FMM) to buttress the region against turbulence–two clear examples of which are being seen in separate parts of the world.”
There is no fear of contagion reaching the Philippines. In fact, UBS reports that the Philippines joins other countries like Taiwan, Korea, and Vietnam as top electronics exporters to China whose overall export volumes did not suffer from the recent developments. UBS notes this to be partly because Vietnam and the Philippines have both increased market shares and the USD value of their electronics and textiles exports to China.
Further, in Capital Economics’ Emerging Asia Economic Outlook for Q3 2015, the Philippines was named a “top performer,” expected to “remain one of the region’s fastest growing economies over the forecast period, helped by recent improvements in the business environment, a strong fiscal position, and improving prospects for exports.”
While investor risk appetite in global markets continue to be weighed down by prevailing uncertainties and the impending rates lift-off in U.S. interest rates, the Philippines remains a bright spot and stands out due to our consistent record of high growth and strong fundamentals.
According to the Coordinated Portfolio Investment Survey (CPIS) of the Bangko Sentral ng Pilipinas (BSP), Philippine investments in Chinese stock markets amounted to $252.5 million or 3.9% of total resident exposure as of end-June 2014. Of this amount, $2.5 million is in equity securities and the balance is in debt securities. Meanwhile, China’s portfolio investments in Philippines are negligible, according to the report of the International Operations Department on BSP-registered foreign portfolio investments covering 2008-May 2015.
Beltran added, “Structural reforms have been put in place; we continue to open up the financial sector and let market forces drive the economy in a level playing field with a clear regulatory environment. Our greater reliance on domestic financing, as well as our emphasis on broadening fiscal space and good management of local government finance ensure we run a tight ship over troubled waters.
On the fiscal side, the country’s general government debt-to-GDP ratio has consistently dropped from 68.1% to only 36.4% in 2014. At end-2014, the deficit amounted to only 0.6% of GDP with sustained growth trajectories in revenue generation.
As of 2014, total (public and private) external debt is at 17% of GDP, or 0.6x FX reserves, one of the lowest levels in Asia. The DOF reiterates the data point that only 8% of external debt matures within one year, demonstrating that ample buffers thickly insulate the country from external risks.
Increased reliance on peso funding bolsters debt sustainability as the country takes advantage of strong domestic liquidity. As of end-May 2015, external debt of the national government is only at 33.6% of total. As a consequence, vulnerability to foreign exchange risk is tempered with heavy bias towards local currency. Moreover, interest payments have been locked at low rates with debt portfolio predominantly in fixed terms.
Finally, the Philippines boasts of robust fiscal and monetary policy coordination, facilitating the appropriate mix of policy responses to allow market forces to drive the economy and a regulatory regime that fosters transparency and fair competition.
