The Philippines is among the emerging markets likely to suffer the most from expensive oil, according to British think tank Oxford Economics.
“Rising fuel import prices will translate into high inflation in emerging markets in Asia and Europe where subsidies are low. Inflation through this channel will be most apparent in the Philippines, Thailand, Poland, India, Hungary and Romania,” said Gabriel Sterne, head of global strategy and emerging markets research at Oxford Economics, and Lucila Bonilla, Emerging Markets Economist, in a report.
The Philippines is a net oil importer.
Mainly due to soaring global prices reverberating locally, the Bangko Sentral ng Pilipinas expects headline inflation to average 4.3% this year, above its target range of 2-4% inflation hikes. manageable prices conducive to economic growth.
“Countries like Thailand, the Philippines, Hungary and Poland are the worst-performing when it comes to energy inflation and fiscal impact,” Oxford Economics said.
Oxford Economics noted that the Philippines would spend about 0.2% of its gross domestic product on subsidies to sectors hardest hit by high fuel prices. The government will grant a total of 47.5 billion pesos in financial aid to the bottom 50% of households, drivers of public utility vehicles and agricultural producers.
The excess collection of the 12% Value Added Tax (VAT) levied on petroleum products will partly finance these distributions. At an average world oil price estimated at $110 a barrel in 2022, the government had expected to collect an additional 26 billion pesos in VAT this year.
In addition, Oxford Economics said commodity importers like the Philippines, Czechia, Hungary and Malaysia would be “hardest hit” in terms of wider trade deficits as oil and other expensive commodities inflate their trade. import bills.
The latest data from the Philippine Statistics Authority showed that the Philippines’ trade deficit widened by 75.7% last year, from $24.6 billion in 2020 to $43.2 billion. . Last year, both imports and exports of goods surpassed their pre-pandemic levels of 2019.
At the end of February this year, the trade deficit widened 47.6% to $8.2 billion, as two-month import growth of 24% to $20.5 billion outpaced the 11-year increase. 9% of export sales to $12.2 billion.
Gaping trade and current account deficits, partly caused by expensive oil imports, further weakened the peso. But Bloomberg reported on Thursday that Finance Secretary Carlos Dominguez III said the peso’s depreciation remained within “manageable limits.”
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