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Can Marcos team move a mountain of Philippine economic challenges?

·4-min read
Ferdinand "Bongbong" Marcos Jr is mobbed by his supporters as he arrives at the campaign heaquarters in Manila on May 11, 2022. The son of the late Philippines dictator Ferdinand Marcos on May 11 claimed victory in the presidential election, vowing to be a leader "for all Filipinos", his spokesman said. (Photo by TED ALJIBE/AFP via Getty Images)

By Michelle Jamrisko, Siegfrid Alegado and Andreo Calonzo

After his landslide presidential election win, the Philippines’ Ferdinand “Bongbong” Marcos Jr. now faces soaring inflation and limited revenue to achieve his ambitious infrastructure goals.

Several names have been floated as potential appointees to his economic team when the new administration takes power next month. The late dictator’s son is building his cabinet amid lingering questions on his family’s wealth and tax liabilities.

What’s certain is the gravity of economic challenges ahead, even in the wake of a better-than-expected first-quarter GDP surprise. While policymakers just weeks ago sounded a more confident tone on reining in price growth, inflation has worsened worldwide, the Philippines included. The central bank is set to decide on its benchmark interest rate Thursday, with a slim majority of analysts expecting a rate hike in line with global and regional trends.

Here’s a look at what’s top of the agenda to keep the Philippines’ post-COVID economic recovery on track:


Faster-than-expected inflation has been rattling central bankers globally. Philippine consumer price growth came in at 4.9% in April, the highest in more than three years and surging past the central bank’s 2%-4% target.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno, whose term ends in mid-2023, said last week policymakers are “ready to adjust” monetary settings if there’s “material risk” of supply-driven price pressures spilling onto the demand side.

Higher borrowing costs and the pressure on both consumers and corporates should catch the eyes of officials looking to ease the burden via fiscal policy.

Marcos has pledged aid and loans to hog raisers to lower pork prices and increase supply. He also said he favors suspending the oil excise tax to tame fuel price hikes.

Infrastructure... and How to Pay For It

Marcos moves into the presidential palace on promises to shepherd along many of his predecessor’s initiatives, including an ambitious infrastructure program with more airports and railways outside the capital and a renewed focus on digital infrastructure.

To the extent that more shovels meet the ground under Marcos, the investments are a “key element of the country’s favorable medium-term growth prospects” supporting their BBB credit rating, Fitch Ratings analysts said in a May 12 report.

Fitch’s negative outlook on the Philippines rating as affirmed in February, however, underscores that the infrastructure ambitions will not be easy to fund.

“Investment efficiency is critical,” the analysts said in the report. “Poorly managed public infrastructure investment could also contribute to government debt rising faster than nominal GDP over the medium term, which would pressure the sovereign rating.”

If Marcos holds his promises on taxes, it’ll be difficult for the government to pay those heftier bills. He’s said he’s against new taxes that will impact consumers, as he doesn’t want to add to the burden of a populace still recovering from the pandemic.

Current Account Deficit

(Source: Bloomberg)
(Source: Bloomberg)

Long the bogeyman for investors, the current account deficit and budget pressure expose the peso to capital outflows and volatility.

The twin deficits and slimming external financing buffers mean the peso is “one of the region’s most at-risk currencies” in the event of an emerging-market rout, Makoto Tsuchiya, economist at Oxford Economics, said in a May 10 note.

So far this year the peso has slumped about 2.8% against the dollar, as of Tuesday.

Spiraling global energy costs pushed the central bank to raise this year’s current account deficit outlook by more than 60% in March to $16.3 billion. Additional weights on exports include Russia’s war in Ukraine, US policy normalization and China’s economic slowdown.

Marcos’s team will also find no quick fix for the budget shortfall. Officials estimate that GDP needs to grow at least 6% for the next five to six years to help bring down the tab.

Consumption and Mobility

(Source: Bloomberg)
(Source: Bloomberg)

Like many economies across Southeast Asia, the Philippines is seeing upside from the post-Covid reopening. A tourism recharge helped convince United Overseas Bank Ltd. analysts that the economy can grow by 6.5% this year, just short of the 7%-9% official target, they said in a May 12 report.

Mobility data from Google also show people returning to shops in a boost to business and the consumer-driven economy. But as private consumption led the way to favorable first-quarter growth numbers, it’ll be hard to sustain that pace as operations return to normal.

“Gains are unlikely to be as robust going forward, especially with inflation rising rapidly, the labor market still exhibiting sluggishness, and households needing to rebuild the savings lost over the past two years,” Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said in a May 12 report.

© 2022 Bloomberg L.P.

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