S&P: Global risks to drive more funds from Philippines

RISING global uncertainty could prod more foreign capital outflows from the Philippines, S&P Global Ratings said, even as upbeat growth prospects and benign domestic inflation are expected to remain intact in the near term.

“External factors continue to be the main source of economic risks — whether from rising protectionism overseas, geopolitical tensions or uncertainty in financial markets that could lead to capital outflows,” S&P said in its monthly economic report.

“The possibility of sudden capital outflows may pose a slightly bigger risk than before, given that higher commodity prices and slower remittance growth have put some pressure on the current account lately.”

Foreign portfolio investments posted a $206.25-million net outflow in the nine months to September, reversing from the $1.267-billion net inflow seen in the same period in 2016, according to data from the Bangko Sentral ng Pilipinas (BSP).

The central bank sees a $900-million net outflow for the entire year, which if realized will reverse the $404.43-million net inflow of flighty foreign funds in 2016.

S&P expects the Philippine economy to expand by 6.4% this year, which would be a notch below the 6.5-7.5% growth goal set by the government. The forecast is also slower than the 6.6% pencilled for 2017 by the International Monetary Fund (IMF) and the World Bank and the Asian Development Bank’s 6.5%.

Economic growth averaged 6.4% from January to June, although economic managers expect a faster pace this semester as more big-ticket infrastructure projects go live in this second year of President Rodrigo R. Duterte’s term.

Looking ahead, S& P said a steady stream of revenues from business process outsourcing as well as “surging” exports will support faster overall economic expansion this year.

Across Asia and the Pacific, the debt watcher said risks to growth are “more geopolitical than economic,” even as it noted that tensions in the Korean peninsula have cooled somewhat.

Globally, market investors are in a risk-off mode as they anticipate the impact of the unwinding of balance sheets by the US Federal Reserve and the choice for Chairperson Janet L. Yellen’s successor who takes over in February next year.

IMF Country Representative Yongzheng Yang has said that investor confidence in the Philippines remains “strong” due to its robust growth prospects.

On monetary policy, S& P said domestic conditions are ripening for a rate hike.

“We continue to expect a tightening bias from late 2017 onwards, but slower market expectations for Fed hikes and a benign inflation outlook could help stay the hand of Bangko Sentral ng Pilipinas slightly longer,” the credit rater said.

Earlier this year, S&P had said that the BSP is likely to raise rates within the year to catch up with a “significant” pickup in inflation.

Prices of widely used goods and services increased by an average of 3.1% in the nine months to September, with an over-two-year peak monthly rate of 3.4% posted in March, April and September. Still, the pace falls within the 2-4% target band set by the central bank and is a notch below the 3.2% estimate for the entire year.

BSP Governor Nestor A. Espenilla, Jr. said last week that there is “no compelling reason” to adjust the monetary policy stance for now, with inflation assured to stay within target.