Philippines on Nomura list of 'troubled 10' emerging markets

Warren de Guzman, ABS-CBN News

Posted at Aug 27 2021 02:25 PM


MANILA— The Philippines has been included on Japan-based financial services group Nomura’s "troubled 10" list of emerging markets that are vulnerable to coming changes in monetary policy in the United States and slowing growth in China.

The other countries on the list are Brazil, Colombia, Chile, Peru, Hungary, Romania, Turkey, South Africa, and Indonesia.

In his latest publication, Nomura Chief Economist Rob Subbaraman said the 10 economies are especially vulnerable to debt problems, capital flight, and large fiscal and current account deficits. 

Subbaraman says the ten countries have three vulnerabilities in common. 

"One is a growing EM (emerging markets) bank-sovereign debt nexus that raises the risk of a so-called bank-sovereign doom feedback loop, the type of loop that was at the heart of the 2009-2010 European debt crisis. Two is how portfolio liabilities, as opposed to cumulative portfolio inflows, paint a different picture showing that several EM countries are susceptible to large capital flight if investors lose confidence in their economic fundamentals. And three is our analysis demonstrating how EM’s extraordinarily large fiscal deficits will likely leak into sizable current account deficits," he said.

Subbaraman warned that "the prospect of the Fed normalizing monetary policy amid China’s slowing economy is a dreadful combination for EM, only to be made worse by the three EM vulnerabilities that we have found lurking in the shadows.”

Nomura equated its "troubled 10" to the so-called "fragile five" that includes Brazil, India, Indonesia, South Africa, and Turkey, who were viewed as high risk during the 2013 Fed Taper Tantrum, when the US Federal Reserve normalized accommodative monetary policies causing volatilities in global financial markets.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said he disagrees with Nomura's assessment.

"We have a different appreciation of the Philippines’ economic and political affairs and where we are right now in managing the COVID-19 pandemic," he said.

"It’s fallacious to treat EMs as one homogeneous group," he added.

"I expect the impact on the EMs by earlier-than-expected normalization process by the Fed will be widely divergent because EMs have different characteristics such as, for example, initial conditions, debt-to-GDP ratio, sovereign ratings, GIR levels, state of banking industry, vaccination phase, dependence on sectors heavily affected by pandemic, and political stability."

The BSP has kept key interest rates at record lows this year, and has said it would keep its current monetary policy settings as long as inflation allows, to help support the economic recovery of the Philippines from the pandemic-induced recession. 

Nomura data shows that as of July, the Philippines has had 14 months of real negative rates from 2020 to 2021.

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