With a rise in US interest rates on the horizon, the Philippine economy is well positioned to withstand the shock resulting from such a move said Cesar Purisima, the country’s Finance Secretary.
Purisima admitted that there will likely be an initial “knee-jerk reaction” to the change of US monetary policy. Money will flee from emerging markets but after investors reassess the shock, the Philippines will stand out relative to other markets, Purism believes.
This is mainly thanks to the government’s efforts to reduce its dependence on foreign borrowing. Because of this, the Philippine economy is on a stronger footing, Purism said.
The Philippines’ external debt is at 15% of its gross domestic product, down from 30% in 2005. Additionally, the country has been able to post a current-account surplus for 13 consecutive years which has helped to bolster the foreign-exchange reserves of the nation.
In many ways, the Southeast Asian country is healthier than many other emerging-market economies. Last year, the Philippine economy grew 6.1%, making it one of the fastest-growing in Asia.
Consequently, the Philippine central bank has been able to follow a stable interest rate policy since September 2014, while many of its neighbors, such as Thailand and Indonesia, had to cut interest rates to stimulate growth.
Last Thursday, the central bank left its benchmark interest rate unchanged for a sixth straight meeting with the central bank saying there’s no need for stimulus.
The stable monetary policies of the Philippines has in turn supported its currency, the peso, which has only edged down 1% against the dollar so far this year — an impressive fact since the Dollar index has gained significantly since the beginning of this year.
Nonetheless, like most emerging markets, the Philippine economy has been hit by a slowdown in global trade.
However, despite the possibly marginal long-term effects, the uncertainty of the pending Federal Reserve rate increase has left its toll. Foreign investment flows into emerging-market stocks and bonds fell to $4.2 billion in June, the weakest month in 2015,
According to the Institute of International Finance. Philippine stocks and bonds experienced an outflow of $455 million in March, according to the IIF.
“Despite global headwinds, the Philippines has a solid outlook underpinned by strong fundamentals and a reformist government, making it well-placed to continue to outperform most of its EM peers,” said Bejoy Das Gupta, chief economist for Asia Pacific at the Institute of International Finance.