Finance Secretary Carlos Dominguez III has assured President Duterte that the impact of the current Russia-Ukraine crisis on the Philippines would only be temporary, and that a comprehensive set of measures are now being implemented to ease its impact on the economy and the people.
Dominguez said that despite the negative repercussions of the crisis in the form of increased energy and food prices, he is confident that the government will be able to keep inflation within the target range of 2 to 4 percent and attain its goal of expanding the economy between 7 and 9 percent this year.
“I would like to emphasize that we do not expect this crisis to last very long. However, there may be some lingering effects. We have seen similar crises in the past, such as in The Gulf War in 1990, the oil price shock of 2008, and also the first Russia-Ukraine Conflict in 2014, and we have weathered all of these crises very well,” said Dominguez during the President’s televised meeting with Cabinet officials Monday night.
President Duterte called the meeting to discuss with his economic managers the government measures being put in place to control the effects of the price hike of basic commodities, such as the provision of subsidies to affected sectors.
Dominguez pointed out that the 1997 Asian Financial Crisis and the global financial shock of 2008 had even more severe, direct and longer effects on the economy, yet the Philippines was able to overcome their challenges.
“Based on these experiences, we are confident that we have the tools and preparation necessary to help our people through this crisis,” said Dominguez, who heads the President’s economic team.
He said the Russia-Ukraine conflict would not directly affect the domestic economy, as neither country is a major trading partner of the Philippines.
“Instead, the Philippine economy will likely be collateral damage; it is as if we are hit by a ricocheting bullet,” the Finance Secretary said.
He said these “indirect shocks” will likely be felt through four major channels: the commodities market, the financial market, investments, and its impact on the country’s fiscal health.
The first point of impact would be on the prices of fuel and food, as Russia is the largest exporter of natural gas and wheat, while Ukraine is the fourth largest exporter of corn.
As the conflict continues, Ukraine’s and Russia’s main trading partners—predominantly the European Union (EU)—will look to trade with other countries such as the United States (US) and China, which, in turn, will drive up the prices of commodities in these markets as well.
The conflict will also likely cause a surge in interest rates or cost of borrowing, which was already expected to go up even prior to the crisis because of the US Federal Reserve’s tightening of monetary policy, Dominguez said.
“The conflict will increase the perception of risk in investments,” he added, which could, in turn, make investors more conservative, or decide to postpone their planned investments owing to global uncertainties triggered by the crisis.
“Once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal,” Dominguez said.
As for the impact on the country’s fiscal health, Dominguez said the government support needed to protect vulnerable citizens and critical sectors most affected by the crisis will stretch state finances further.
He said the measures outlined by Secretary Karl Kendrick Chua of the National Economic and Development Authority (NEDA) to squarely address these potential shocks will help insulate Filipinos from the ill effects of the crisis.
“With the measures that Secretary Chua has presented, we are confident that we will be able to keep inflation within our target range of 2 to 4 percent and to maintain our growth path of 7 to 9 percent this year,” Dominguez said.
Among the measures presented by Chua is the need for the entire country’s shift to Alert Level I and the opening of all schools to in-person classes to increase domestic economic activity and offset external risks.
He also cited the need to increase the amount of fuel subsidies to the public transport sector and farm producers; the expansion of the oil buffer stock; the continuation of the promotional fuel discount given by oil firms; promotion of energy conservation; suspension or removal of pass-through fees imposed by the local government units (LGUs) and other entities on truckers; implementation of service contracting in all public transport routes; and promotion of the use of electronic vehicles and the use of active transport (e.g bicycles) as among the measures to mitigate the impact of the oil price hike.
Citing the proposals of the Economic Development Cluster (EDC) of the Cabinet, Chua also recommended increasing the buffer stock for liquified petroleum gas (LPG) from 7 to 15 days; expanding supply and reducing coal price by reducing the most favored nation (MFN) 7 percent tariff rate to zero until December 2022; and maintaining the coal buffer stock at the current 30 days minimum inventory.
To ease the impact on electricity consumers, Chua said the EDC proposed promoting energy conservation measures including the use of technology for energy savings; staggering the increase in the power generation charge; and allowing foreign ownership of microgrids, and solar, wind and other renewable energy sources.
In the agriculture sector, Chua said the EDC recommended implementing the second phase of the ‘Plant Plant Plant’ program subject to the availability of funds; and providing targeted fertilizer vouchers to farmers, and expanding supply through bilateral discussions with fertilizer-producing countries.
The EDC’s other recommendations are as follows:
- The Department of Agriculture (DA) to closely monitor rice inflation, and the National Food Authority (NFA) to closely monitor buffer stock;
- Help LGUs increase rice buffer stock with concessional loans from the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP), particularly in the procurement of post-harvest facilities and warehouses;
- Accelerate Rice Competitiveness Enhancement Fund (RCEF) implementation and other parts of the national rice production program to increase local production;
- Facilitate continuous release of Sanitary and Phytosanitary (SPS) import clearance for rice especially for shipments arriving for the lean season starting July;
- Expand supply and reduce price of rice by extending the MFN 35 percent tariff rate until December 2022;
- Increase supply and reduce price of corn by lowering the MFN tariff to 5 percent in quota and 15 percent out quota with minimum access volume (MAV) of 4 million MT until December 2022;
- Import more feed wheat and produce more cassava (as feeds substitute);
- Expand supply and reduce prices of pork by extending the lower tariff of 15 percent in quota and 25 percent out quota with MAV of 200,000 metric tons (MT) until December 2022;
- Accelerate release of imported pork from cold storage;
- Pass the livestock and dairy bill;
- Remove all non-tariff barriers for pork and fish;
- Issue the Certificate of Necessity to Import (CNI) for small pelagic fish (e.g., galunggong) valid from the second to fourth quarters of 2022. The supply needs an additional 140,000 metric tons (MT) to fill up the projected supply gap of 200,000 MT;
- Accelerate the release of SPS clearances for chicken from the National Meat Inspection Service (NMIS) cold storage warehouses to push up inventory to pre-pandemic level;
- Address the temporary restraining order (TRO) on sugar imports;
- Allow direct importation by industrial users: implement 1:1 domestic to import ratio;
- Expand sources of wheat (e.g., India);
- Support the mass-based Pinoy Tasty Project of the Department of Trade and Industry (DTI) in partnership with the private sector, which offers bread at lower prices;
- Promote non-wheat flour substitutes such as the Sagip-Nutri flour (made from cassava, sweet potato, monggo, etc), and banana flour; and
- Reiterate the inclusion of renewable energy (RE) and agriculture in the draft Strategic Investment Priority Plan (SIPP). (DOF)
