CITIGROUP, INC. (Citi) anticipates the Philippine economy to grow by approximately 6% this year, partially propelled by persistent expansion in the business process outsourcing (BPO) sector.
“We foresee the growth in 2025 remaining around the 6% mark,” Citi Asia South Head Amol Gupte stated during a virtual briefing on Monday.
Citi’s projection would fall on the lower end of the government’s 6-8% target for the year.
“The Philippines will continuously gain from [the BPO industry] and will generate numerous jobs. As we advance in the value chain of global capability centers, nations like the Philippines will have a significant role alongside India,” Mr. Gupte remarked.
The information technology and business process management (IT-BPM) sector concluded 2024 with $38 billion in export earnings and 1.82 million full-time jobs.
According to the Philippine IT-BPM Industry Roadmap, the goal is to evolve into a $59-billion sector and increase the full-time workforce to 2.5 million by 2028.
“Therefore, it’s essential for the Philippines, as it contemplates the BPO industry, to ascend the value chain to retain and attract more middle-office positions beyond the voice roles that number in the tens of thousands,” Mr. Gupte expressed.
Nonetheless, the emergence of artificial intelligence (AI) could pose a threat to the IT-BPM industry in the Philippines.
“There’s also the threat regarding how AI will affect that sector and whether it will lead to job reductions,” Mr. Gupte noted.
In the meantime, Citi South Asia Corporate Banking Head K Balasubramanian mentioned that ongoing economic growth guarantees that Philippine banks are well-equipped to keep generating profits.
“I believe the financial standing of Filipino banks remains very robust, and with 6% growth, I think they are well capitalized to explore the prospects ahead,” he stated.
By the end of September 2023, the Philippine banking sector’s net profit increased by 6.4% to P290 billion as both net interest and non-interest revenues rose.
“We just witnessed the upgraded Philippine sovereign rating that occurred in the fourth quarter of last year. And when you examine the effect of that on the Republic of the Philippines, along with the state-owned banks, I believe that will be exceedingly favorable since we are now rated at BBB+,” Mr. Balasubramanian said.
“(This) signifies that the capacity to secure international financing will improve, and even the cost of access will be more favorable than in the past.”
In November, S&P Global Ratings confirmed the Philippines’ investment grade status and elevated its outlook to “positive” from “stable” to highlight the economy’s robust growth potential, bolstered by “effective policy making.”
The credit ratings agency affirmed its “BBB+” long-term credit score for the country, which is one notch beneath the “A” level grade targeted by the administration.
A positive outlook implies that the Philippines’ credit rating might be elevated in the next couple of years if progress is sustained.
Additionally, Mr. Gupte pointed out that the financial performance of the banking sector this year would rely on the interest rate landscape.
“Regarding the profitability of Philippine banks, I believe they are all exceptionally strong. They possess solid balance sheets; they have minimal nonperforming loans. However, I think overall profitability will hinge on how the rate environment shifts both globally and how that affects the Philippines, considering the significant share of interest income that Philippine banks rely upon,” he remarked.
The Monetary Board has reduced benchmark borrowing rates by a total of 75 basis points since initiating its easing period in August, bringing its policy rate to 5.75%.
Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. mentioned this month that there is still capacity to continue lowering interest rates as inflation is well within its annual target.
The Monetary Board is set to conduct its first rate-setting meeting of this year on February 20. — A.M.C. Sy
