AGGRESSIVE spending and investment, as planned and promised by the current administration, is likely to affect the movement of the peso in the near to medium term, economists said.
At the onset of the administration of President Duterte, ramping up spending in infrastructure is among the priorities of his economic team, citing the losses the country is seeing amid the lag in infrastructure.
This, according to economists, will not only help speed up the economic expansion and increase the productive capacity of the country, but also move to influence the peso in the foreign-exchange market.
In the near term, Bank of the Philippine Islands (BPI) research officer Nicholas Antonio Mapa told the BusinessMirror that having to invest heavily on infrastructure projects may cause a depreciation of the peso against the US dollar, owing to the increase of imports needed for the projects.
“Yes, [President] Duterte and [Budget Secretary Benjamin E.] Diokno plan a very aggressive ramp-up in infra spending to bridge the infrastructure gap we have with the rest of the region. We have the lowest or second lowest WEF [World Economic Forum] infrastructure ranking in the Asean area and we need to address this,” Mapa said.
As of 2015, the Philippines ranked 90th out of 144 economies worldwide in terms of the quality of infrastructure, according to the WEF annual report.
“A stark increase in infra spending will call into the need for more imports, in the form of steel bars, capital machinery and other materials used in the building of roads and bridges. Should the jump in dollar demand outweigh the supply of dollars from remittances, exports and BPO [business-process outsourcing], we may see some pressure on the peso,” Mapa said.
Data from the PDS Group showed the peso losing steam against the dollar in recent days. The peso ended the trading week at 47.12 against the US dollar on Friday, losing 5 centavos of value from the previous day’s trade of 47.07 to a dollar.
In the longer term, however, the peso is likely to gain back against the dollar once infrastructure quality has already improved in the country.
In a separate response to the BusinessMirror, Moody’s Analytics economist Jack Chambers said better infrastructure will attract more players to invest in the local scene and eventually bring the peso’s value up against the dollar.
“Increased infrastructure spending, particularly public-private partnerships, should help to make the Philippines a more attractive investment destination. This will help to improve capital inflows to the country, leading to an appreciation of the peso,” Chambers said.
Just recently, the International Monetary Fund (IMF) said the Philippines is poised to post at growth of 7 percent to 8 percent due largely to the Duterte administration’s plan to aggressively increase infrastructure and social spending.
“So despite the [expectation] that the Philippines [will continue] to grow 6 percent for the next few years, with the added efforts in infrastructure investment and increase in social spending, like education and health, the country’s growth rate will become even higher, possibly within the new government’s target of 7 percent to 8 percent,” IMF Mission Head Chikahisa Sumi said.
In the first quarter of the year, the local output hit 6.9 percent, one of the fastest sprints in the region.