The country’s economic managers said a weak peso should not bother Filipinos, as this will translate to higher tax revenues, additional monetary benefits for overseas Filipino workers (OFWs), and will support the country’s thriving business-process outsourcing (BPO) sector.
Finance Secretary Carlos G. Dominguez III said even with a strong dollar, imports of capital goods continue to increase, which translates to higher revenue collections for the Bureau of Customs (BOC). For the first quarter imported goods amounted to $22.053 billion, which grew 18.6 percent year-on-year, according to the Philippine
Statistics Authority.
Trade Secretary Ramon M. Lopez said a weakening peso would act as a form of protection for local industries and a boon for exporters. “As we have experienced in the manufacturing sector, as long as the depreciation is gradual, the depreciation is also benefiting and increasing consumption spending.
It spurs economic activity, like more purchases, as we’ve experienced a consumer spending uptrend whenever there is a depreciation,” Lopez said.
National Economic and Development Authority (Neda) Secretary Ernesto M. Pernia said the Philippines’s robust service exports helped contribute to the country’s positive external current accounts.
For Dominguez, the main driver of the foreign exchange rate are speculations over the planned three-phase increase in interest rates by the US Federal Reserve System, which has prompted investors to migrate their dollars to the US and resulted in a drop in demand for the Philippine peso.
“Our imports have been increasing, and the reason they are increasing is mainly not for consumer goods, but for capital goods. So there are more factories being set up and more equipment, especially electrical equipment, being imported,” Dominguez said during a committee hearing on the Comprehensive Tax Reform Program.
Another beneficiary of the peso depreciation is the BPO sector, which, combined with OFW remittances, contribute about $50 billion a year to the Bureau of the Treasury, according to Dominguez.
“So a one-peso depreciation means there is P50 billion more of potential demand. And as you know, this money goes into buying apartments, educating the kids, buying cars. So it’s actually beneficial to us, more beneficial I think than negative,” he said.
Dominguez assured lawmakers at the House of Representatives that the government’s fiscal managers are looking at the peso depreciation carefully.
According to Budget Secretary Benjamin E. Diokno, at the macroeconomic level, a one-peso depreciation would yield a net gain of P7.2 billion for the state coffers because revenues will increase by P9.2 billion as a result of higher collections by the BOC, while the foreign debt service will only have a corresponding increase of P2 billion.
“So the net gain will be P9.2 billion in additional revenues minus P2 billion in higher debt service, [which gives us] P7.2 billion,” Diokno said.
Dominguez also said that as a percentage of GDP, the country’s debt service has been on a downtrend, from a high of 90 percent of GDP to only 40 percent.
“So we are in a very good position debt-wise,” he said.
The Department of Budget and Management and the Neda are projecting debt-to-GDP ratio to go down to 35 percent by 2022.
“The traditional rule of thumb is that if you have a debt-to-GDP ratio of 60 percent or lower, you’re in good shape,” Diokno said.
The country’s strong fiscal and debt-to-GDP position amid a peso depreciation have been recognized by international markets, which bought $2 billion worth of 25-year global bonds at a low interest rate of 3.7 percent issued by the Philippine government on January 20, the first fund-raising activity under the Duterte administration.
“Even though interest rates have gone up worldwide already, we are still paying at a lower interest rate than other countries because they recognize that our financial system is very strong and that our debt is very manageable,” Dominguez said.
Diokno added that a one-peso depreciation would be advantageous to families of OFWs, as they get to consume and spend more, and thus, would bring more money into the economy.
“As the peso depreciates, the OFW families will have more money in their pockets, they will use that to consume. But part of that also will be recovered in terms of higher value-added tax [VAT] collection because VAT is a tax on consumption. So it’s a net gain,” Diokno said.