Finance Secretary Benjamin Diocno assured the public that the Philippine economy is strong enough to withstand the aggressive interest rate hikes implemented by Bangko Sentral ng Pilipinas (BSP).
On Thursday, he told reporters that the 6.7% to 7.5% gross domestic product (GDP) growth target set by the Development Budget Coordinating Committee could “absolutely” offset a 75 basis point off-cycle central bank rate hike resulting bringing rates on loans, deposits and overnight loans to 3.25 percent, 2.75 percent and 3.75 percent, respectively, from June 24, 2022.
Given the encouraging development of economic activity in the first few months of this year, Diokno noted that “the economy remains resilient to cope with the recent monetary policy rate hike.”
He said that the target GDP growth rate was set taking into account the different rates of normalization of the BSP’s monetary policy.
The head of finance also said the economy was growing at this rate before the pandemic, when the discount rate was 4.00 percent.
“We estimate that the economy will return to its pre-pandemic state by the middle of this year or at the latest by the third quarter of 2022. BSP just sped up the normalization process,” he added.
Diokno noted that continued easing of lockdown rules, as well as the beneficial effects of structural reforms such as the Civil Service Law, the Retail Liberalization Law, the Corporate Recovery and Enterprise Tax Relief Law, and the Foreign Investment Law, are seen as supporting the growth outlook.
“NG (the national government) will continue on a gradual and measured path of fiscal consolidation to help maintain strong growth momentum,” he added.
In terms of economic outlook, the Philippines is expected to grow at a faster rate than any of its neighbors in the ASEAN+3 region over the next two years and be the second fastest in the Asia-Pacific region after India, the Treasury Secretary stressed. .
ASEAN+3 is the Association of Southeast Asian Nations plus Japan, China and South Korea.
He also said that when measuring the resilience of an economy, the debt-to-GDP ratio is not the only important criterion, but the economic fundamentals of a country should be taken into account.
“The demographic profile of a country matters – young or aging. Resilience matters – how did it work during previous crises? Does the economy depend on many or limited sources? [tourism, coffee, agricultural exports]? Is the quality of institutions democratic or authoritarian added?), Diokno added.
In the Philippines, he said, the fiscal and monetary authorities are in full control, the debt-to-GDP ratio is manageable, the banking sector is strong and well capitalized, and the already low NPL ratio continues to decline. .
The banking sector has also created sufficient buffers, the external sector remains resilient and gross international reserves are more than sufficient, and there is a strong structural inflow of foreign exchange, he added.
“In political terms, there has always been a smooth transfer of power. The new president and vice president, belonging to the same party, were elected to office by an overwhelming majority. Compare that to other countries,” the cabinet member also said.