Maharlika fund creation should not be gov't priority: Nomura economist

Jekki Pascual, ABS-CBN News

Posted at Dec 09 2022 04:22 PM

MANILA — The establishment of a sovereign wealth fund should not be a priority of the government given challenging global economic conditions and fiscal headwinds the Philippines is facing, Nomura Chief ASEAN Economist Euben Paracuelles said on Friday.

At an online media briefing, Paracuelles said the Philippines remains to have a record-high account deficit and a sovereign wealth fund may not be a good idea at this time.

"This is not something that should be a priority. And if you look at the government's 8-point economic agenda, there are other things that need more urgent legislation; not this one," said Paracuelles.

In its 2023 Asia Economic, Currencies and Equities Outlook report, Nomura said the Philippines' expected fiscal balance could be -6.8 percent for 2022, -6.6 percent in 2023, and -5.9 percent in 2024.

"The Philippines is running still at current account deficit and a record high at that, you know by definition that means your domestic savings pool is not enough to fund your investment needs," said Paracuelles.

"Government balance sheets have been under some pressure after COVID and this is why debt levels are higher. Again there is not much scope for the government to provide excess funding for sovereign wealth fund," he said.

The country's debt-to-GDP ratio was at 62.1 percent as of the end of June. Before COVID-19, a 60 percent debt-to-GDP ratio is considered high.

The country's economic managers argued the MWF would help the Philippines increase investments and funding of infrastructure projects and countryside development such as in agriculture. 

The Maharlika fund will also result in "intergenerational benefits" such as increased access of the future generation to income from investments, and reduced fiscal pressures, they said. 

Nomura continued to place the Philippines under the "underweight" category together with Singapore. 

It said the Philippines' low market liquidity remains a key concern and that the economy is vulnerable to rising food and commodity prices and that surging trade deficits could keep pressure on the currency.

But economists said the Philippines and Indonesia could be ASEAN's rising stars in the recovery from the pandemic. The gross domestic product (GDP) of the 2 countries is expected to be high in 2024 and the demographic dividend will help the nations lure in more investors.

The Philippine GDP could grow by 6.7 percent in 2022, 4.3 percent for next year and 6 percent for 2024, Nomura said. 

Meanwhile, the Philippine peso is also expected to strengthen further against the dollar from P56 to a dollar for this year's average, to P54.5 next year and P53 by 2024.

Nomura also sees another 100 basis points of cumulative rate hikes by the Bangko Sentral ng Pilipinas through the first quarter of 2023 due to persisting inflation.

The BSP has raised the benchmark interest rate by 300 cumulative basis points this year to 5 percent to tame inflation which hit 8 percent in November. Another rate hike is expected this December. 


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