PHILIPPINES watchers, including economists and bankers, have a raft of priorities for Ferdinand Marcos Jr., who’s set to take over as president as faster inflation threatens to undermine the economy’s recovery from the pandemic.
Growing price pressures may dent demand, which is a key driver of the economy. Policy makers have said gross domestic product needs to grow at least 6 percent for the next five to six years to help it pare debt it took on to fight Covid-19. Meanwhile, Bangko Sentral ng Pilipinas is among the few central banks in Asia that have stood pat on rates to support economic recovery, rather than pivoting toward the inflation risk.
From continuing outgoing leader Rodrigo Duterte’s economic policies, especially his “Build, Build, Build” infrastructure program, to fighting inflation, here’s what Philippine watchers are saying Marcos Jr., known as Bongbong, needs to do after taking office:
Sonia Zhu, economist at Moody’s Analytics
• “The incoming president will need to treat inflation as a top economic priority.”
• If first-quarter GDP growth exceeds 6 percent year-on-year, the odds of an interest rate hike in June will rise to 60 percent, she said in a note dated May 6, commenting on the need to tame inflation that’s running above the central bank’s 2 percent-4 percent.
Wick Veloso, president of Philippine National Bank
• Investors would like to hear Marcos’ plan of creating more jobs and helping consumers and sectors hardest hit by the pandemic.
• Market would also like to know how his government intends to manage public debt which increased by three times, Veloso said in an interview Bloomberg Television. “You can’t just cure this with taxes.” A number of assets will have to be sold for it would take “a long time” to bridge this gap if it’s taxation alone.
Nalin Chutchotitham, economist at Citigroup Inc.
• Cabinet formation is an opportunity for Marcos to address some of the private-sector concerns on governance.
• “High inflationary pressures from energy and commodity prices could hurt the positive economic recovery momentum thus far, and must be well-managed with continuation of supply-side measures,” she wrote in a report to clients Tuesday.
• “Ensuring confidence among the international community and foreign businesses could help support capital flows and currency stability.”
Alex Holmes and Gareth Leather of Capital Economics
• “Marcos gave away few policy details on the campaign trail. But one thing he is keen to do is resume the ‘Build, Build, Build’ infrastructure program of President Duterte,” they wrote in a report to clients Monday. They said the new leader will hope to “expand and improve” the program.
• While the additional spending on infrastructure would increase government debt, the economists saw room for the government to deal with higher debt, which at 58 percent of GDP “is still much lower than it was for much of the 2000s.” (Editor’s note: The ratio was reported on May 12 as having risen to 63.5 percent the first quarter.)
• Marcos may also be keen to pursue closer ties with China to benefit from low interest loans, they said, adding that help may be less forthcoming given Beijing has reined in overseas investment and lending in recent years.
Tamara Mast Henderson, economist at Bloomberg Economics
• Marcos’s “No. 1 task will be securing the robust foreign investment needed to maintain strong growth and put the nation’s ballooning debt on a sustainable track. To do this, Marcos must persuade investors that he won’t repeat his father’s mismanagement—a tall order”
• He must also restore fiscal restraint and stay out of the central bank’s way as it works to tamp down inflation expectations
Michael Ricafort, economist at Rizal Commercial Banking Corp.
• “Key success factors” for the incoming president that would help sustain economic recovery and attract more investment include a credible and competent economic team, promotion of ESG, strengthening institutions and rule of law as well as continuation of fiscal reforms
• Investors are in “some wait-and-see attitude, as a matter of prudence, while waiting for details in the coming days or weeks”
Analysts at ING Bank NV
• “Marcos has vowed to subsidize food and fuel items, which will adversely affect the country’s fiscal sustainability goals,” analysts at the bank wrote in a report to clients Tuesday. The peso is likely to come under selling pressure today as foreign funds exit, they said, while adding that little was known about his election platform target amid supply shocks to food and energy prices.
Image credits: AP/Aaron Favila