Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno is certain that there will be no recession for the Philippines under his watch as incoming finance secretary for the Marcos administration.
“I can say with confidence that there will be no recession in the Philippines,” said Diokno in a BBC Asia Business Report where he was asked about US recession warnings and its spillover effects to other countries including the Philippines.
Diokno expressed continued confidence on the Philippines’ sustained economic recovery after reporting a higher-than-expected 8.3 percent first quarter GDP growth on the back of strong macroeconomic fundamentals.
“We had been growing at around 6 to 7 percent before the pandemic. The economy has recovered after a slowdown and contraction in 2020 – it bounced back to 5.7 percent last year. During the first quarter of this year, it grew by 8.3 percent, and there is a strong probability that we will hit 7 to 9 percent this year, as originally projected before the pandemic,” he said.
Diokno reiterated that the Philippines continues to have a healthy buffer stock, supported by the steady inflow of overseas Filipino remittances, business process outsourcing receipts, and foreign direct investments. As of end-April, the gross international reserves (GIR) amounted to $105.4 billion. The US dollar buffer declined by $1.91 billion from end-March’s $107.31 billion. For this year, the BSP expects a GIR of $108 billion.
As incoming finance chief, Diokno said he will be focusing more on reducing the debt to GDP ratio and lowering the fiscal deficit to GDP ratio, and to better manage debt sustainability. The Philippines currently has a national debt worth P12.7 trillion and still climbing, surpassing the threshhold of 60 percent to GDP ratio, at 63.5 percent.
Meantime, global investors are increasingly worried about a US recession this year or in 2023 with a slowing US economy resulting in stagflation – or a high inflation but low GDP environment -- due to higher prices of food, oil, energy and other non-oil products.
The BSP’s Monetary Board already increased its policy rate by 25 basis points (bps) last May 19, after freezing it at two percent since November 2020. The BSP is poised to raise the benchmark rate by another 25 bps on June 23. Central bank officials have hinted that they may not stop at 2.5 percent and could raise it higher by end 2022.
Diokno has always said that the monetary policy space will continue to support the economy by balancing inflation and growth outlook to ensure the Philippines’ continued favorable location as an investment site.
The BSP is also mindful that with a recovering economy, the BSP’s anti-pandemic policies will gradually return to normal and “the extraordinary measures will need to be scaled back.”
The country’s inflation scenario is currently elevated due to the higher global oil and non-oil prices. The BSP said the above-target inflation outlook is expected to last until the first quarter of 2023. The BSP has an average inflation forecast this year of 4.6 percent and 3.9 percent for 2023.
As of April, inflation stood at 4.9 percent, sharply increasing from four percent in March. The four-month average is 3.7 percent. The BSP attributes the higher inflation in April to the faster price increases of food, electricity, and domestic petroleum.