OF SUBSTANCE AND SPIRIT
How do we assess the three concerns of Fitch?
So far, the government has been keeping to its broad policy framework that made our good economic situation of the last 20 years possible. Bayanihan 2 was passed by Congress and approved by the President last September 11, allocating P165.5 billion to finance government programs focused on health mitigation, cash-for-work, agricultural support, and assistance to industries affected by the pandemic.
We pin our hopes on the P10-billion standby fund for COVID testing and other related expenses. Flattening the epidemiological curve is central to successfully re-open the economy and recover from the slump. Market, credit rating and IFI analysts are one in saying that the lockdown of the economy given our weak public health facilities is the singular cause of the recession. Unless these lockdowns are eased, the future will remain bleak.
It was good Malacañang decided to keep the GCQ in Metro Manila and other key areas starting October 1. This, despite local government units’ recommendation to revert to a more restrictive MECQ.
If we managed to keep new cases to around 3,000 with GCQ, why revert to MECQ when we were hitting at some point 5,000-6,000 daily?
There are other cracks outside economics.
These are the wild cards in Congress, involving leadership and pork barrel distribution; in the Supreme Court, resolving the constitutionality of the Anti-Terror Act; in the telecom industry, on the issue of the third telco; and in public health, on delivering the death blows to the coronavirus while waiting for the elusive vaccine. The US-China-ASEAN drama in the West Philippine Sea could drive more dynamics into the region’s trade and investment.
We dread the day when a CRA like Fitch withdraws its confidence in our ability to manage our ship of state, and take away the benefit of its doubt. Contagion is a more formidable risk.
The external indicators broadly point to the right direction. But there are risks. They are numerous. The 7.6 percent recovery in overseas workers remittances in July, 2020, is considered an aberration because the lockdown prevented our modern heroes from remitting as scheduled. As more Filipinos return home, they also accelerated their remittances. In the medium term, as fewer Filipinos remain working overseas, the annual flow is expected to decline.
Current account improvements are driven more by compressed imports rather than by higher exports and BPO revenues. In fact, the Philippine Exporters Confederation is appealing for public assistance because small exporters are barely surviving.
During the first eight months of 2020, foreign investors pulled out more portfolio investments from the Philippines for six consecutive months. Net outflows recorded in the same period last year amounted to only $1.1 billion compared to this year’s withdrawal of $3.89 billion. Since foreign borrowings were frontloaded this year, FX proceeds comprised the underlying reason for the overall balance of payments surplus for seven straight months. These are also reflected in the hefty $98.95-billion gross international reserves.
And finally, banks’ asset quality requires closer monitoring. The non-performing loan ratio went up from end-December 2019’s 1.6 percent to end-July 2020’s 2.3 percent. Fitch observed that local banks’ loan loss provisioning is much larger than their counterparts in the region. This portends some risks ahead even as Fitch was confident local banks continue to be profitable and with rather high capital base.
During the webinar, it was interesting how the participants responded to the informal on-line survey. On whether the Philippines’ current rating of BBB with stable outlook was appropriate, about 72 percent confirmed the rating. Some 16 percent felt it rather high. More than 7 percent considered it too low. Around 5 percent said they were unsure.
On banks’ stress, nearly half of the respondents felt that Philippine banks would be able to recover gradually. About a quarter believed recovery would be harder. Some 14 percent were optimistic the recovery would be faster. The rest were uncertain.
The credit analyst in the Webinar was most prescient. Of prime importance she said is for the Philippines to show growth as soon as possible. We need to keep market confidence because our buffers are showing apparent erosion.
There is a space for victory against the virus. The pandemic is a storm, and by all means we must break it to stop the lockdowns and usher in a season of economic calm and revival.