With Greece missing its repayment to the IMF last 30 June 2015, emerging markets are expected to be at risk of capital flow reversal which can be prompted by either loss of investor confidence, asset price shifts, increase in borrowing costs, and foreign rate volatility. The Philippines stands as a pillar of stability in the region with a sound fiscal position decoupled from any spillover effects.
The Philippines has no significant exposure to Greece having minimal trade with a mere 0.01% of total exports and only 0.02% of total imports from Greece in 2014. Likewise, remittances from Greece account for only 1.38% of the total.
The Philippines has continued to strengthen its macroeconomic fundamentals, with the widening of fiscal space, tamed inflation, robust reserves, and the strong performance of a well-capitalized banking sector, enabling the country to withstand external shocks and other challenges to price and financial stability.
According to the IMF, these fundamentals should provide for the necessary cushion to be able to manage the effects and respond adequately due to ample policy space.
Finance Secretary Cesar V. Purisima said, “The Philippines is prepared to navigate through challenges from uncertainties brought about by external risks and factors. We continue to develop measures fortifying the economic fundamentals we have built, as well as increasing competitiveness in the country, reaping brighter prospects for higher and more durable growth.”
The national government continues to safeguard its sound fiscal performance. Both the IMF and the World Bank forecast that for the next three years, growth will be above 6%, allowing financial and external developments to prevent any real economic decline. Primary balance is also maintained as no new debt has been issued to finance interest payments.
In addition, the government of the Philippines also undertakes prudent policies on debt and liability management including preferences for domestic over foreign debt, and long-term debts over short-term debts. The reduced reliance on external financing makes the country less susceptible to foreign exchange volatilities while long-term debts insulates the country from liquidity problems that short-term debts bring about.
The adequate reserves that the Philippines holds serve as a buffer for external risks as well. The central bank’s reserves stood at $80.4 billion as of May 2015, and can cover about 10-11 month’s worth of imports and is 4.5 times the country’s debts maturing within the short term. Inflation has therefore been tamed and kept within official targets, giving the monetary authorities more room for maneuverings.
The Philippines has been enjoying surpluses in its current account due to sustained rise in remittances, and tourism and BPO receipts. For this year, the central bank projects a current account surplus of $14.2 billion compared with the surplus of $12.7 billion last year.
Further, the Philippines actively participates in various regional cooperation frameworks such as the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation, that serve as a platform for policy dialogues on global imbalances, developing precautionary arrangements to prevent crisis episodes and deepen financial stability.
“The overall decline of the debt burden, strong external position and banking system, stable inflation, well managed fiscal position, and participation in cooperative frameworks sustains market confidence in the country. While the Philippines stands in good stead to navigate the challenges not only from Greece but emerging bouts of uncertainties, it is imperative to stay on the course of reform and maintain vigilance to put the country on path of sustained, higher and inclusive growth.” Purisima added.
