The Pinoy Business Chronicle

Business news and analysis. Covering financial news, economic issues, stock market data, local business, business policy and more.

Philippines Economy News

More fiscal measures needed as inflows dwindle

more fiscal measures needed as inflows dwindle - More fiscal measures needed as inflows dwindle

FISCAL measures to support the economy need to compensate for the major drop in foreign exchange inflows as the pandemic drags on, according to the International Institute of Finance (IIF).

“Foreign exchange flows to emerging markets have dried up and countries like the Philippines have to rely on domestic policy to support the recovery,” IIF Deputy Chief Economist Elina Ribakova told BusinessWorld in an e-mail.

Ms. Ribakova said fiscal spending during this crisis needs to be directed towards health, households, and businesses.

“It is important to explore all (and new) tools to address the pandemic. Swift policy response is critical to support business and consumer confidence,” she added.

As lockdowns shut down most economies, foreign direct investment inflows into the Philippines fell 67.9% year on year to $11 million in April, according to the central bank. This total was the lowest since May 2019.

The passage of tax reform measures is expected to encourage investment by defining the playing field they can expect to operate in. The proposed Corporate Recovery and Tax Incentives for Enterprises Act, which will immediately bring down corporate income tax to 25% from the current 30% and to 20% by 2027, was left pending in Congress before it adjourned.

ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill, a P1.3-trillion stimulus package with allotments for mass testing, wage subsidies, and assistance for small businesses, among others, also failed to passed Congress before the break.

On the monetary side, the Bangko Sentral ng Pilipinas has slashed key policy rates by 175 basis points (bps) this year, reducing the overnight reverse repurchase, lending, and deposit rates to 2.25%, 2.75%, and 3.75%, respectively.

Reserve requirements for banks have also been cut by a total of 300 bps. The Monetary Board is authorized to reduce by 400 bps this year.

“In the case of the Philippines there is room for further cuts on the margin, but the focus should be on the fiscal policy response,” Ms. Ribakova said. — Luz Wendy T. Noble

Leave a Reply

Theme by Anders Norén