Oil prices decline sharply
Increased US production and an expansion of US crude stockpiles for the fourth straight week pushed oil prices sharply lower last week. US WTI crude fell to a nearly five-week low of $68.53 per barrel, plunging more than 11 percent or $8 a barrel from this month’s four-year high of $76.90. Meanwhile, Brent crude dropped by nine percent or $8 to a low $78.69 last Thursday from its four-year high of $86.75 on Oct. 3.
From a high of $84.116 per barrel last Oct. 3, Dubai crude has declined 4.9 percent to $80.03 per barrel. Futures prices also point lower. The November Dubai crude futures price is currently at $77.018 per barrel as of Thursday, down 7.4 percent from its Oct. 3 high of $83.51. Meanwhile, the December Dubai crude futures hit $79.691 per barrel last Thursday, down 7.4 percent from its Oct. 3 high of $82.792.
Rising US – Saudi tensions, a possible black swan
While the price of crude oil has come down, it may be too early to say whether lower oil prices will continue because events are fluid. We cannot underestimate the risk of escalating Saudi-US tensions over the murder of
Washington Post columnist Jamal Khashoggi. If the US imposes economic sanctions on Saudi Arabia, then it can change the oil picture, resulting in negative global consequences.
Suspension of fuel tax hike
Earlier, the government proposed the suspension of the fuel tax hike to “help anchor inflation expectations better, and discourage profiteering and hoarding.” However, with the sharp pullback in oil prices in the recent weeks, there is an increased chance that the $80 (three-month average) threshold for Dubai crude may not be triggered at all.
Gov’t addresses food inflation
President Duterte has signed Administrative Order (AO) 13 which eases the importation process for agricultural products, including rice, as well as Memorandum Order (MO) Nos. 26, 27, and 28 to stabilize prices of essential agricultural commodities and maintain sufficient supply in the domestic market. These measures should address food inflation and is expected to have a broader impact on the reduction of overall inflation.
Fiscal stability and economic growth
With oil prices leveling off, the government may have to rethink the planned suspension of the hike in fuel excise taxes. We believe that the increase in fuel taxes will create fiscal stability and economic growth thru the various Build Build Build programs. The benefits of fiscal stability outweigh the effects of the fuel tax hike suspension on inflation. On the other hand, a suspension may have an adverse impact of a wider fiscal deficit due to the foregone revenues which would open our economy to many risks such as credit
The Philippine government plans to tap various commercial offshore debt markets as part of its borrowing program next year, according to the Department of Finance (DOF).
In an interview, Finance Secretary Carlos Dominguez said the government is looking to issue euro-denominated bonds and British-pound denominated Sterling bonds in 2019.
“We hope to do something in England. We are getting invitations from some of the ambassadors from Europe to have a roadshow in Frankfurt,” Dominguez said.
Dominguez said he has also ordered the Bureau of the Treasury (BTr) to make a presentation to express the Philippine government’s interest in Norway’s $1 trillion wealth fund.
The Duterte administration is considering issuing US dollar-denominated global bonds in 2019.
Aside from these, Dominguez said the government also intends to make a comeback in the samurai and panda bond markets as early as next year.
“For the samurai, we plan to do it within 12 to 18 months from August. In China, we will come back to the market again within 12 to 18 months from last March,” he said.
To recall, the government sold 1.46 billion renminbi ($230 million) worth of panda bonds last March. In August, the BTr also raised ¥107.2 billion ($1.39 billion) worth of samurai bonds.
The national government intends to increase its borrowing program to P1.19 trillion in 2019 from this year’s P986 billion.
National Treasurer Rosalia De Leon said this was in anticipation of the higher fiscal deficit programmed by economic managers for 2019.
The Development Budget Coordination Committee earlier raised the government’s fiscal deficit ceiling to P624.73 billion for 2019, equivalent to 3.2 percent of the gross domestic product.
According to the Treasury, P297.2 billion ($5.504 billion) of the total amount to be borrowed next year will be sourced from external lenders. This is 14.1 percent lower than this year’s P346 billion.
The remaining P891.7 billion under the 2019 borrowing program will come from domestic lenders.
Dominguez said the national government is still planning to issue US-dollar denominated global bonds this year as part of its pre-funding efforts.