MANILA, Philippines – The anticipated unwinding of the US Federal Reserve’s stimulus program as well as the slowdown of the global economy are “threats to economic stability,” but the Philippines should be able to weather the uncertainties, a central bank official said.
Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa Guinigundo said the Philippines is “not yet in safe waters,” but its strong macroeconomic fundamentals will cushion the impact of the market turmoil.
“One uncertainty is the pending unwinding of the US Fed Quantitative Easing program,” he told a Bloomberg forum.
The Fed’s plan has sent the peso and local stock market plunging during the past weeks.
Guinigundo said the tapering of the US stimulus will spark the repricing of assets and cause capital outflows from emerging markets and may weaken external financing.
He however gave assurance that the Philippine economy “has tools to appropriately respond to such eventuality.”
He said the Philippines also faces challenges from slower global economic growth, which he described as now the “new normal.”
“But the advantage the Philippines has over other emerging markets is its macroeconomic fundamentals,” he noted.
No longer a ‘stray cat’
Guinigundo said the Philippines has shed its image as “Asia’s stray cat,” and is joining the pack of Asia’s emerging tiger economies.
“The cat is beginning to let the world hear its mighty roar.”
He cited the country’s strong gross domestic product growth of 7.5% in the second quarter, low inflation, sound banking system and liquid market.
He said on the external front, the Philippines’ balance of payments surplus and foreign exchange reserves will help it “ride out any turbulent period we may encounter.”
Nevertheless, Guinigundo said the Philippines should remain cautious because of the “headwinds challenging us.”
“These risks, if not managed carefully, can undermine growth,” he said.
He said sustaining strong growth and making the financial system “more inclusive” are key. He said government should also implement more programs to “help poor people out of poverty.”
“There is still a lot to be done.” – with a report from Shadz Loresco, Rappler.com