ADDITIONAL monetary relaxation will be required to spur economic advancement, Finance Secretary Ralph G. Recto stated, noting a significant possibility that the central bank will lower rates next month.
“Equally significant, I reckon, is the decrease of interest rates. It seems that, since inflation has been managed in the Philippines… there is potential for a rate reduction in our upcoming (meeting),” Mr. Recto, who also serves as a Monetary Board member, informed Bloomberg during a televised discussion on Wednesday.
“There’s a strong chance that we might enact a rate reduction also for our forthcoming meeting,” he remarked.
The Monetary Board is scheduled to conduct its next rate-setting conference on April 10.
The central bank paused its easing measures last month as it unexpectedly maintained the key rate at 5.75%.
This came after it lowered rates across three consecutive meetings late last year, resulting in a total of 75 basis points (bps) in rate reductions.
Mr. Recto mentioned that there is potential for as much as 75 bps of rate reductions this year.
“Ideally, at a minimum of 50 bps and possibly 75 bps (cuts), for the year that will aid in driving growth, consumption, and investments forward,” he added.
Lowering borrowing expenses could contribute at least 0.5% growth to gross domestic product (GDP), he noted.
“If we could decrease it over the next two years by 150 bps, (it would likely be) even more significant. Over the past decade, we have grown at an average of 6.4% when rates hovered around 3.4% to 3.9%. (Our) policy rate is 5.75%,” the Finance chief articulated.
Mr. Recto expressed that further rate cuts, together with supporting investments, could elevate Philippine growth to 7% “or even more in the future.”
For this year, Mr. Recto affirmed that the Philippines will achieve its growth objectives.
“We’re quite confident that we’ll reach at least 6% growth. The World Bank, the IMF (International Monetary Fund), and numerous other entities are indicating that we’re on course for 6%,” he mentioned, citing the nation’s robust macroeconomic fundamentals, low unemployment, and ongoing investment in infrastructure.
“We also have elections occurring right now and during elections, there is increased spending, hence we are quite confident we’ll achieve at least 6% this year,” Mr. Recto continued.
The government aims for 6-8% growth for this year through 2028.
The GDP of the Philippines grew at a slower-than-anticipated 5.2% in the fourth quarter, resulting in a full-year growth of 5.6%. This fell short of the government’s revised 6-6.5% full-year goal.
Despite challenges stemming from a slowdown in global growth, Mr. Recto remarked that the Philippine economy is primarily fueled by consumption.
“To date, our BPO industry is expanding. Our remittances from overseas Filipino workers continue to rise. We hope that these challenges do not impact that as well. Tourism is also improving,” he noted.
The recent arrest of former President Rodrigo R. Duterte is also not anticipated to undermine investor confidence.
When questioned about the potential for political unrest following his arrest, Mr. Recto responded: “We do not foresee that occurring. Zero.”
“That has no bearing on our macroeconomic fundamentals. Initially, there was a slight decline in the stock market, but very muted, however, the peso appreciated on the day of his arrest,” he remarked.
“It may also indicate that the international community is observing how crucial the rule of law is to us, and it is part of governance as well.”
Mr. Duterte, who governed the Philippines from 2016 to 2022, was apprehended under an International Criminal Court (ICC) warrant on allegations of crimes against humanity.
FISCAL STRATEGY
Concurrently, the Finance chief indicated that the government is progressing with fiscal consolidation efforts.
“We are on the right track. We exceeded our revenue goals. Last year, we achieved the highest revenue-to-GDP ratio in the past 27 years. That’s very impressive.”
Recent figures from the Treasury revealed that the National Government (NG) recorded a P68.4-billion budget surplus in January, 22.27% lower than the P88-billion surplus a year earlier.
By the end of 2024, the deficit as a portion of GDP settled at 5.7%, down from 6.2% at end-2023. The NG aims to reduce the deficit-to-GDP ratio to 5.3% this year and further to 3.7% by 2028.
The Finance department will also persist in privatizing underutilized state assets, such as the Caliraya-Botocan-Kalayaan hydroelectric power facility.
“We’re also making it accessible for retail investors, as there are many government assets that are nonperforming, and it incurs costs for the government to maintain them, so it’s better to privatize those.”
“Even small properties that are acquired by the private sector or individual investors could generate greater value for the economy.”
These privatization initiatives are anticipated to yield around P100-billion in revenues. — Luisa Maria Jacinta C. Jocson
