Philippine inflation rate eases to 4.3% in October

Slower price increases of food has slowed down Philippine inflation rate to 4.3 percent in October 2014 from the September level of 4.4%.

“Ample supply of meat, fish, and vegetable items in the market and easing of commodity prices helped reduce price pressures,” says Economic Planning Sec. Arsenio M. Balisacan.

“In part, the easing of logistics bottleneck in the port of Manila starting September 2014 may have also contributed to the abatement of price pressures in October 2014,” says Balisacan.

Year-to-date inflation stood at 4.3 percent, still within the Development Budget Coordination Committee’s target of 3 to 5%.

The easing prices of commodities in the international market amid improved supply were reflected in the domestic markets.  However, this favorable impact was negated by the year-on-year upward adjustments in electricity charges during the period.

Price indices of electricity, gas and other fuels went up to 3.2 percent in October 2014 from 2.4 percent. Electricity price increased as a result of the P0.67 per kilowatt hour generation charge of the Manila Electric Company or MERALCO.

“Overall, the tempered inflation outturn is expected to provide the Bangko Sentral ng Pilipinas (BSP) room to possibly keep its key policy rates steady,” says Balisacan.

The central bank’s monetary board in October 23, 2014, kept the BSP key policy rates unchanged at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. This was done due to easing pressures for commodity prices, robust domestic demand, adequate domestic liquidity, and strong bank lending growth.

“On the external front, global economic prospects are expected to remain uneven, thus mitigating upward pressures on commodity prices,” says Balisacan.

The government will remain vigilant against inflation risks and will continue efforts to ensure supply sufficiency of key commodities and to mitigate the impact of a possible dry spell. It also continues to explore more lasting solutions to the port congestion problem to avoid disruptions in the domestic supply chain that could result in higher transportation costs.

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Philippines hikes public infrastructure spending to 2.6 trillion pesos

The Philippine government would increase its public infrastructure spending to at least five percent of gross domestic product (GDP) in 2016 estimated at 2.06 trillion pesos.

Socio-economic Planning Sec. Arsenio Balisacan said the priority programs for the infrastructure sector consist of 952 projects to be supplemented by private sector investments through public-private partnerships (PPPs).

To optimize public-private partnerships and enhance the country’s attractiveness to private sector investors, the government has reviewed, amended and approved policies and legal framework involving private sector participation such as the IRR of the BOT Law (RA 7718) and the joint venture guidelines.

Reforms in the energy sector have also increased private sector participation. In July 2012, the Energy Regulatory Commission (ERC) approved the feed-in-tariff (FiT) rates to encourage renewable energy developers to invest at the initial stage and hasten deployment.

To improve competitiveness and geographic connectivity, the pocket open skies policy was issued in 2011, allowing foreign carriers to operate unilateral and unlimited traffic rights to airports other than the Ninoy Aquino International Airport (NAIA), said Balisacan.

The Common Carriers Tax (CCT) aims to enhance the country’s competitiveness in international travel by encouraging international air carriers to include the Philippines in their primary routes.

“On top of these policies, the government is pursuing the synchronization of planning, programming and budgeting to ensure that the programs and projects are aligned with the country’s developmental goals and outcomes,” said Balisacan.

“Sustaining the economy’s high-growth trajectory requires continued investment in infrastructure to unleash the potentials of many areas throughout the country.”

The Philippine government has encouraged the private sector to participate in the construction and implementation of various programs and projects that have been identified in a number of infrastructure-related roadmaps and master plans.

Some of the priority transport infrastructure programs include the Transport Infrastructure Development Roadmap for Metro Manila and its surrounding areas, the Logistics Infrastructure Roadmap for Mindanao, to improve logistics infrastructure for cost-effective linking of Mindanao’s agriculture and fishery production centers the DPWH and Department of Tourism (DOT) Convergence Plan, to provide road access to designated priority tourism destinations under the National Tourism Development Plan (NTDP).

Other approved infrastructure master plans include the  Flood Management Master Plan for Metro Manila and Surrounding Areas and the E-Government Master Plan (EGMP).

In the energy sector, the 2013-2017 Household Electrification Development Plan (HEDP) issued by the Department of Energy (DOE) sets the plans and strategies to attain 86.2-percent household electrification by 2016 and 90-percent by 2017, while the Philippine Energy Plan 2012-2030 targets 100-percent electrification of villages by 2015.

To promote energy conservation and energy efficient technologies, the Department of Energy (DOE) is implementing various activities under the National Energy Efficiency and Conservation Program (NEECP), while the National Renewable Energy Program (NREP) aims to develop specific technologies and help the country triple its renewable energy capacity by 2030.

Philippine inflation peaks at 4.9%

Philippine  inflation rate has peaked at 4.9% considering that rice harvests start in September and 500,000 metric tons (MT) of new imports begin to arrive in October, according to FMIC & UA&P Capital Markets Research.

The lifting of truck ban in Manila has eased the flow of food items to Metro Manila and other parts of the country, while crude oil prices are likely to continue their downward trend until the first half of 2015.

“The central bank is likely to have a pause as consistently softer inflation figures at 4.2% by year-end starting September. Besides, with the previous BSP measures clamping down on liquidity, money supply is likely to slide to a single-digit growth by November,” said FMIC & UA&P.

FMIC & UA&P expect another round of monetary policy tightening moves before the end of the year.

“We continue to see the peso having difficulty coping with the strength of the US dollar. The fundamentals and the technical indicators both show a depreciation bias for the rest of the year, with brief respites provided by OFW Christmas-related remittances.

FMIC & UA&P also expect a rally in peso-denominated bonds amidst stronger Philippine economic performance, falling domestic in­flation rates, and the continuing appeal of US Treasuries given its economy’s robust growth.

Faster second half economic growth with renewed government spending and stronger exports, should infuse greater optimism in the local financial markets, said FMIC & UA&P.

“We do not see much pressure from US T-bond rates ris­ing in the fourth quarter. At best, 10-year T-bonds are forecasted to hit 2.75% or some 40 basis points from the lowest levels reached the second quarter.”

FMIC & UA&P also expect a rush of corporate bond issuances in the fourth quarter as the backlog has been building up due to the need to satisfy regulatory requirements.

Good governance is crucial to sustainable economic growth

Good governance and macro-economic and political stability are crucial for sustainable economic growth in the implementation of the revalidated public investment program (PIP).

Socio-economic Planning Sec. Arsenio Balisacan stressed that the revalidated PIP which can now be accessed online, outlines the major government programs and projects that are expected to help achieve the targets under the updated Philippine Development Plan 2011-2016.

The updated version of the PIP takes into account the progress that the current administration has done and the challenges for the remaining years.

“We recognized that the real measure of progress is the improvement of the lives of our people,” said Sec. Balisacan.

He noted that the revalidated PIP helps ensure that public resources are channelled to investments that will yield the highest and most sustainable socio-economic benefits for the Filipino people.

“In effect, the revalidated PIP actualizes the necessary institutional changes and innovations to deliver lasting results that are felt by the people especially the poor,” said Balisacan.

The document also indicate a total estimated investment target of P4.19 trillion, where more than half of about 1,500 identified priority programs and projects are allocated for infrastructure development.

It also includes updates on the status of current and major programs and projects which started implementation in 2011 and the priorities for the remaining plan period 2011-2016, with emphasis on core investment programs and projects.

“We hope that the revalidated PIP will empower government agencies and development partners in implementing, coordinating, and complementing development projects across the country and will effectively serve its purpose as one of the nation’s instruments to achieve inclusive growth,” Balisacan added.

Genting Hong Kong and its Philippine partner Alliance Global Group (AGI) will invest another $1.2 billion over the next three years in the Resorts World Bayshore project at the Pagcor Entertainment complex in Pasay City.
David Chua, president of Genting Hong Kong, said the amount is on top of the $800 million his company and AGI have jointly invested in Resorts World Manila.

Chua, who had invested in the country more than four years ago, was encouraged by the favorable macro-economic fundamentals, the government’s reforms and a large pool of educated workforce.

He expressed optimism over the business prospects in the Philippines, citing favorable fundamentals characterized by low inflation, improved credit rating, strong currency and an emerging middleclass.

Chua also underscored the importance of government reforms, believing that changes in eradicating the inefficiencies and rampant corruption usually set the scene for the next stage of growth and development.

Apart from their investments in integrated resorts, Chua said that his company will relocate its regional operating headquarter from Kuala Lumpur in Malaysia to Manila.

Genting has also set up a training academy and a call center which services not only its cruise businesses, but also sister companies such as Resorts World Sentosa.

Chua said the Philippines, with a population close to 94 million and a large young highly educated and talented workforce, clearly has the ‘right people’.

“The Philippines is uniquely positioned as it is traditionally an exporter of human capital especially knowledge workers. Unlike Singapore and Hong Kong who have had to import skilled workers, the Philippines hitting her inflection point need only to bring back home the overseas Filipino workers (OFWs),” he added.

Furniture industry adopts customer-oriented strategy

The Chamber of Furniture Industries of the Philippines (CFIP) has adopted a new strategy to attract more buyers in a bid to achieve its 15 percent growth target over the next few years.

CIFP president Nicolaas de Lange said the CFIP would employ a customer-oriented and market-focused approach in selling their products.

“It is really a more focused type of selling rather than a shotgun approach.The Philippines has always been in developing products which are generic. We will study products that are specific to a particular market in terms of style, size and price.”

De Lange said they will gather market intelligence themselves rather than just relying on trade attaches.
“Part of the program we have with the government is that when we penetrate a market, we go there in the first year, study and bring back the data,” he noted.
He added that furniture makers will then develop products tailored to fit that specific market. They will get back to that country the following year with the products.
De Lange pointed out that industry players will align furniture designs to customer needs in both the local and global markets.
In going global, they will focus on Brazil, Russia, India, China and South Africa (BRICS) market while continue serving the traditional United States market.
“The US is showing some signs of recovery. I think the US will allow us to achieve that potential growth as well as the other key markets,” he said.
“By encouraging our members to look at the local market seriously, it will surely give us the volume that will encourage businesses to invest in the factories and hire more people,” he said.
Apart from marketing strategies, the industry roadmap will focus on three other key development factors: product development, capacity building and advocacy.

Philippines to benefit from Russia’s membership to WTO

The membership of the Russian Federation to the World Trade Organization (WTO) would benefit the Philippines as it is committed to bring its trade laws and practices into compliance with WTO rules and other market-opening measures.
Such commitments include reducing tariffs and binding tariffs levels, ensuring transparency when implementing trade measures, non-discriminatory treatment of imports of goods and services, and enforcing intellectual property rights of foreign holders.
The Philippine mission to the WTO disclosed that Russia’s WTO membership granted the Philippines various concessions that the country has successfully negotiated in 2005.
The concessions include the reduction in tariffs from initial bound rates to final bound rates within an implementation period of zero to six years granted to a number of local products and additional concessions on sugar importation.
Russia is a huge market for the country’s sugar industry as its total importation valued at nearly $US1.8 million last year at generalized system of preferences (GSP) rates.
As part of its WTO commitment, Russia will maintain GSP rates for no less than seven years from August 2012 for the range of products at the level of 75 percent of most favored nation (MFN) applied duty rate.

Russia would also phase out tariffs in agriculture. The average tariff ceiling for agriculture products will be 10.8 percent lower than the current average of 13.2 percent; manufactured goods will be 7.3 percent against the 9.5 percent current average; other goods will come down to 14.9 percent for dairy products, 10 percent for cereals; 7.1 percent for oilseeds, 5.2 percent for chemicals, 12 percent for automobiles, 6.2 percent for electrical machinery and 8 percent for wood and paper.

On financial services, Russia will allow foreign insurance companies to set up branches after nine years while the overall foreign capital participation in the Russian banks will be limited to 50 percent.
Russia would also allow 100 percent foreign-owned companies to engage in wholesale, retail and franchise sectors.

Need to assess impact of free trade agreements

The National Economic and Development Authority (NEDA) has underscored the need for the Philippines to assess the impact of these trade agreements — particularly those where the country is a signatory — on its efforts to achieve inclusive growth and reduce poverty.
This was stressed by Socio-economic Planning Sec. and NEDA director-general Arsenio Balisacan during the recent  Development Policy Research Month (DPRM) Research Fair 2012 in Makati.
Balisacan urged research institutions particularly the Philippine Institute of Development Studies (PIDS) to look closely at how regional economic integration may be taken advantage of to provide high- quality jobs even for the unskilled workers.
“The need for the revival of the manufacturing sector, which has been stagnant for three decades, cannot be overemphasized,” said Balisacan.
He noted that the manufacturing sector could generate high productivity jobs, leading to higher employment and lower poverty incidence, which is the essence of inclusive growth.
Balisacan also cited the establishment of PIDS and the important role that science and analysis play in the formulation of policies that ultimately impact on the lives of our people.
“In the world of policy where diverse political, economic, and social interests converge and, many times, conflict, science and research provide a framework under which rational decisions can be formulated.”
“Through the years, PIDS and the other research and development institutes taking part in the research fair have upheld evidence-based policymaking for the country,” Balisacan said.
PIDS has produced a number of key studies addressing issues, and offering evidence-based policy recommendations, on regional economic integration, competition policy, and poverty reduction issues.
Balisacan also underscored the need for science and analysis in the formulation of development policies that would continue to highlight the significance of think tanks such as PIDS.

Philippine tuna industry to benefit from EU-Philippine free trade pact

The Philippine tuna industry would benefit from a free trade agreement with the European Union (EU), according to Dr. Danilo
Israel, a senior research fellow of the Philippine Institute of Development Studies (PIDS).

Dr. Israel  said that if the country’s tuna industry is afforded similar privileges as competitors from similarly situated former European colonies in Africa, the Caribbean and the Pacific regions, a Philippine-EU free trade agreement will bolster the export of processed tuna to Europe.

Africa, Caribbean and Pacific countries, for reasons that these were former colonies of member countries of EU, enjoy zero tariff on their tuna exports to that economic bloc, a privilege not accorded the Philippines which was a Spanish colony for more than 300 years. Philippine tuna is slapped a high 24 percent tariff in Europe.

Speaking on the impact of a PHL-EU free trade pact on manufactured goods, Dr. George Manzano advised government negotiators to approach the challenge by negotiating tariff reduction on a line-by-line basis, concentrating on goods that are slapped high tariffs in the EU for
possible reduction, and zero in on domestic industries threatened by imports from Europe to enjoy local tariff protection.

But when Manzano presented samples of what tariff lines to negotiate, he found very few exports to push as most manufactured exports to Europe already enjoy zero or near zero tariffs.

Manzano hinted that the local manufacturing sector too would benefit little from a new trade pact with the EU.

Empirical evidences had shown that manufactured products from the Philippines led by electronics already enjoy minimal tariff in the EU
trade bloc.

ADB raises economic growth forecast for the Philippines

With the positive first half performance of the economy, the Asian Development Bank (ADB) has scaled up its gross domestic product (GDP) growth forecast for the Philippines from 4.8% to 5.5% in 2012.
 
However, ADB said the economy needs to create more job opportunities to link economic growth to poverty reduction.
 

“Increased business confidence bodes well for investment and future jobs,” said ADB chief economist Changyong Rhee.

 
“But the Philippines must guard against weaknesses outside its own economy that could have a knock-on effect,” said Rhee.
 
 
In its update of the Asian Development Outlook 2012,  ADB noted that the Philippine economy continues to show its strength despite global and regional economic slowdown.
 
Stronger than expected economic growth in the first half of 2012 was broadly based. Private consumption was buoyant, fixed capital investment quickened, public spending rebounded, and net exports contributed to growth. Inflation remains under control at 3.5% for 2012.
 
ADB forecasts GDP growth for 2013 at 5.0%, unchanged from early projections. In 2013, inflation is forecast at 4.1% on the back of higher global food prices, as well as pressures from sustained strength in domestic demand.
 
But softer demand from industrialized countries than forecast in the report could undermine export and investment prospects for the Philippines, said ADB.
 
The service sector is expected to continue to benefit from robust private consumption and investment. The business process outsourcing industry employed approximately 638,000 Filipinos in 2011 and this number is expected to rise by at least 20% by year end.
 
Although the number of new jobs has grown by one million over the past year, this only slightly exceeds overall growth in the labor force, and mainly reflects a rise in part time employment with 1.5 million positions created. Full-time jobs fell by 500,000 in the same period.
 
“The key challenge is to link economic growth to poverty reduction. Despite solid economic growth, job generation remains inadequate, reflected in rates of unemployment and underemployment. The incidence of poverty remains high at 26.5% in 2009, compared to 26.4% in 2006 and 24.9% in 2003,” said Neeraj Jain, ADB’s country director for the Philippines.
 
Manufacturing will also benefit from a gradual recovery in exports and growth in domestic demand. Construction, meanwhile, will benefit from public infrastructure spending and implementation of public-private projects.