Hong Kong is a major destination for Filipino migrants. Source: Wikimedia
The Philippine economy is suffering amid the global turndown rather than as a reaction to new President Rodrigo Duterte’s bloody war on drugs, market analysts say.
A slowdown in remittances from the Filipino diaspora, a big driver of growth, is a key factor behind the country’s economic sluggishness.
“Everybody’s pointing to Duterte,” said Erwin Balita of BPI Asset Management in the Philippine capital. “But for me, it’s really the fundamentals of the country. The drop in remittances is a big game changer,” he said.
The peso has been hit by the departure of foreign investment and is down 5 per cent against the dollar since July. It is down 2.4 per cent this year, making it the worst performing regional currency apart from the yuan.
Yields on 15-year dollar bonds issued by Manila have gone up 17 basis points since July.
The Philippines is one of the region’s most active issuers of US-dollar-denominated bonds. With Asia’s second-highest growth rate, it has been a focus for yield-hunting international investors over the past couple of years.
Bond investors are concerned about the strong correlation between Philippine bonds and US Treasuries, and the potential for Philippine bond prices to fall as market participants prepare for the Federal Reserve to boost its near-zero rates.
“People think that Treasury rates are going to go up and that is the reason why the role of Philippine bonds being a Treasury proxy is negatively affected,” said Arthur Lau of PineBridge Investments.
“People are somewhat concerned about the near-term political environment,” Lau said.
The Philippines’ current account surplus in the second quarter fell to US$65 million from US$3.2 billion year-on-year, mainly because of rising imports and stagnating remittances.
Remittances from expat workers have traditionally funded the private consumption that drives 75 per cent of the economy. However, flows until July totalled only US$15.32 billion, up only 3 per cent year on year, because of the sluggish global economy and the falling value of host currencies.
Partly in reaction to stagnation elsewhere, the Philippine Russian Business Assembly (PRBA) is giving “all-out” support to Duterte’s recent pronouncement to expand trade relations with Russia.
The assembly is looking to boost ties in tourism, mining, energy, education, culture, placement services and real estate.
Russian Federation Honorary Consul Armi Lopez Garcia, who chairs the PRBA, said: “We, in the PRBA, are fully supporting this initiative of President Duterte. The president’s declaration bolsters our very own initiative, which is for the furtherance of our business ties with Russia,” Garcia announced.
According to the Department of Tourism, almost 25,300 Russian tourists visited the Philippines in 2015 and its tourists, along with those from West Asia, Europe and Japan, are considered big spenders, shedding US$1,000 per visitor.