The government’s top economic managers are crafting measures to cushion the impact of Ukraine-Russia war on the domestic economy, particularly on the prices of basic goods and commodities.
While Finance Secretary Carlos G. Dominguez III believes the impact of the geopolitical crisis in Eastern Europe would only be temporary, Socioeconomic Planning Secretary Karl Kendrick T. Chua still raised the need to increase economic activity domestically.
On Monday, March 7, the economic mangers discussed with President Duterte their proposed interventions and recommendations to alleviate the effects of the price shocks caused by Russia-Ukraine war.
Topping the list of recommendations is the immediate shift of the country to the lowest quarantine status, or Alert Level 1. They also want all schools to hold in-person classes.
Chua said these two interventions alone will quickly increase domestic economy and offset the external risks induced the by ongoing war.
“While we cannot prevent the risk from coming from the global perspective, we can strengthen our domestic economy to provide the people with more jobs and opportunities,” the NEDA chief said.
He also cited the need to increase the amount of fuel subsidies to the public transport sector and farm producers, as well as expand the country’s oil buffer stock from 30 to 45 days, and the continuation of the promotional fuel discount given by oil firms.
The economic team proposed to increase the fuel subsidy program for public utility vehicles from the already announced P2.5 billion to P5 billion. They also urged oil firms to provide promotional fuel discounts of P1 to P4 per liter.
Moreover, the government vowed to provide additional fuel vouchers for agricultural producers by increasing the program’s budget from P500 million to P1.1 billion.
In addition, Chua said the government should promote energy conservation and suspend or remove of pass-through fees imposed by the local government units (LGUs) and other entities on truckers.
Chua also said the government should implement service contracting in all public transport routes, and promote the use of electronic vehicles and active transport such as bicycles.
Dominguez told President Duterte that once this comprehensive set of measures is implemented, it will ease the impact of Russia-Ukraine war on the local economy and the people.
Despite the negative repercussions of the crisis, Dominguez remains confident that the government will be able to keep inflation within the target range of two percent to four percent and attain its goal of expanding the economy between seven percent and nine percent this year.
“I would like to emphasize that we do not expect this crisis to last very long. However, there may be some lingering effects,” Dominguez said.
“We have seen similar crises in the past, such as in The Gulf War in 1990, the oil price shock of 2008, and also the first Russia-Ukraine Conflict in 2014, and we have weathered all of these crises very well,” he added.
Dominguez also pointed out that the 1997 Asian Financial Crisis and the global financial shock of 2008 had even more severe, direct and longer effects on the economy, yet the Philippines was able to overcome their challenges.
“Based on these experiences, we are confident that we have the tools and preparation necessary to help our people through this crisis,” said Dominguez, who heads the President’s economic team.
He said the Russia-Ukraine conflict would not directly affect the domestic economy, as neither country is a major trading partner of the Philippines.
“Instead, the Philippine economy will likely be collateral damage; it is as if we are hit by a ricocheting bullet,” the Finance secretary said.
He said these “indirect shocks” will likely be felt through four major channels: the commodities market, the financial market, investments, and its impact on the country’s fiscal health.
The first point of impact would be on the prices of fuel and food, as Russia is the largest exporter of natural gas and wheat, while Ukraine is the fourth largest exporter of corn.
As the conflict continues, Ukraine’s and Russia’s main trading partners—predominantly the European Union—will look to trade with other countries such as the United States and China, which, in turn, will drive up the prices of commodities in these markets as well.
The conflict will also likely cause a surge in interest rates or cost of borrowing, which was already expected to go up even prior to the crisis because of the US Federal Reserve’s tightening of monetary policy, Dominguez said.
“The conflict will increase the perception of risk in investments,” he added, which could, in turn, make investors more conservative, or decide to postpone their planned investments owing to global uncertainties triggered by the crisis.
“Once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal,” Dominguez said.