Not a consequence but still

Published May 13, 2022, 4:59 AM

by Fil C. Sionil

It’s not the consequence of the elections. Neither, it is the outcome.

Although the result did not sit well with some of us, the opinion expressed by US investment house JP Morgan was definitely not the aftermath, simply because the view was circulated to its global clients on May 8, a day prior to the election.

Truth be told, that JP Morgan’s Philippine Strategy Report was published and the views were “established” before the election outcome was known.”  

All things considered, including the political surveys, the assessment, downgrading to underweight the country, was driven by long-term global and local macroeconomic fundamentals, and not by election results/outcomes in general. We think the Philippines faces a challenging macroeconomic outlook post 2022 regardless of the outcome of the May 2022 presidential elections. 

Offshore investment houses like JP Morgan, foreign investors as well as local market analysts have been closely monitoring the macroeconomic fundamentals of the country, specifically the debt-to-GDP ratio, which has shot-up for nearly three years.

Latest statistics showed the government public debt went up to 59.11 percent in 2021 with total outstanding debt eked-in a 20 percent growth, reaching P11.73 trillion. This level represents 60.5 percent of GDP, thus, pushing the debt-to-equity ratio to a high of 54.6 percent.

Simply put the debt watchers are concerned about the widening ratio because it mirrors the ability of the government to meet its debt obligation.    

So far, we have not reneged on our obligations after the country went back to the international financial market in the 1990s, years following the declaration of debt moratorium in 1983.

Compared to the 1983 situation, the country’s balance of payments position (BOP) is much better at a surplus of $991 million in December 2021, bringing the full-year 2021 to $1.35 billion surplus. Albeit, substantially lower than the $16.02 billion surplus the year before. Back then, the severe BOP was coupled by the uncertainties in the political arena.

Removing the personalities involved in the recent electoral process, the winners of the May election have to face a mountain-full of challenges to sustain the recovery of the domestic economy.

There’s euphoria in the camp of the winning team. But, once they buckle down to work, there are a myriad of challenges the new economic team will be facing: escalating inflation rate, declining value of the local currency versus the US dollar, high public debt, weak revenue collection, containing fiscal spending.

As JP Morgan puts it: “Inflation, a drag on consumption, and to accelerate monetary tightening. Philippines’ inflation is highly sensitive to the crude oil price compared to other EM (emerging market) Asia countries.

If commodity prices continue to stay elevated, it will have important implications for the Philippines, an economy grappling with twin deficits trade deficit and current account). Sequentially, increased inflation and reduced real income would drag private consumption, which accounts for more than 75 percent of the Philippines’ GDP.”

For now, market observers, including ordinary individuals, are awaiting the members of the cabinet team of the incoming government. Speculations circulating along the corridors of the banking and business communities indicate that the list may include backing of some personalities and the retention of two currently holding portfolios.

Watching how the wheels of decision will play out in the coming days. But, let’s not forget the most important point here, the economy, which registered a hefty improvement of 8.3 percent in the first quarter and I must admit is a consequence of the outcome of the election.

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