MANILA — Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said the domestic economy’s proven resiliency shelters it from the full brunt of external problems, such as Turkey’s ongoing financial crisis.
In an interview Monday, the central bank chief said the country’s macroeconomic fundamentals remain “very good” on the back of strong domestic expansion and sustained improvement of fiscal and monetary policies.
The country’s external position, he said, remains good since the government’s budget deficit is “moderate” and “indebtedness is low.”
He said the economic managers’ “policy response is quite dynamic and strong,” as shown by the tax reform program on the fiscal side, as well as policy rate decisions to address rising inflation on the monetary side. “So our policy-making is dynamic, and our exchange rate is flexible,” Espenilla said, citing these factors as the country’s second line of defense against external factors.
The third line of defense, he said, includes the high foreign exchange reserves and the strong banking system. “For those three main reasons — fundamentals, sound policy, buffers — the Philippine economy is quite resilient to external factors,” he said, pointing out, however, that “that’s not to say that we won’t be affected by what’s going on outside.”
Espenilla noted that the country will still “be affected but we’d like to think the impact would be relatively moderate and manageable.”
The domestic economy’s resiliency has been proven, especially during the global economic crunch a decade ago.
While growth in some advanced economies contracted during the global financial crisis, the Philippine economy remained strong, with average domestic growth rising to about 6 percent from about 3 percent before.
In the second quarter of 2018, growth, as measured by gross domestic product (GDP), slowed to 6 percent from 6.6 percent in the previous quarter.
Espenilla, however, attributed this slowdown mainly to the small contribution of the agriculture sector as a result of weather-related factors. Agriculture expanded by only 0.2 percent from April to June this year due to the weather disturbances.
Meanwhile, the central bank chief said the impact of the monsoon rains on inflation of agricultural items, in particular, will have short-term impact and will be transitory. “They normalize as soon as supply normalizes,” he said.
“The challenge is when all these things come together at the same time. People may fear that there’s already widespread inflation that’s persistent,” he said, hence, the monetary officials’ move to always explain to people the reasons for the uptick of inflation. Espenilla noted that “depending on the drivers of inflation, not all of them require monetary policy action.”
“For many of these, the best response is really to deal on the supply side, so the supply normalizes,” he added. (Joann Villanueva/PNA)
