Weaker fundamentals to affect peso's strength

UNCERTAINTIES over the Philippine government’s management of the coronavirus pandemic and deteriorating economic fundamentals will threaten the peso’s strength, Fitch Solutions Country Risk & Industry Research said.

“We expect the peso to remain vulnerable to coronavirus disease 2019 (COVID-19) outbreaks, given low vaccination rates and difficulties containing outbreaks,” it said in a note on Tuesday on its forecast for the local unit for the next three to six months.

“The outbreaks are disrupting the economy’s recovery and hampering market investors’ interest in its assets and delaying longer-term foreign investment decisions,” Fitch Solutions said.

The fully vaccinated in the Philippines currently make up only 17.17% of its population, lagging behind regional neighbors and only better than Indonesia, Vietnam, Taiwan, and Myanmar.

The government is hoping to vaccinate 70% of the population by end-2021, but delays in vaccine delivery continue to hamper inoculation efforts.

Cases likewise remain high, with the daily infection count at almost 20,000 for the past weeks.

The outbreak’s impact on tourism is expected to affect the peso, Fitch Solutions said.

“There is also a heightened prospect that the Philippines’ ability to revive its tourism sector will lag other markets, which again will soften demand for the peso relatively,” it said. The country’s deteriorating economic fundamentals due to the pandemic, including rising public debt and a widening current account deficit, “is likely to weigh on the peso’s attractiveness to investors,” Fitch Solutions added. — L.W.T. Noble