The outlook for the Philippine economy has turned a bit brighter from just a month ago, thanks to falling oil prices and favorable local developments.
The oil story is of particular significance to the Philippines, which imports nearly all its fuel requirements to generate electricity and keep the transportation system running. High oil prices mean increased power and transport costs that, in turn, lead to elevated prices of basic goods and services.
Crude oil prices last month hit their highest levels since 2014. Since the start of November, however, the oil market has had an unexpected reversal.
This followed a change in outlook for the commodity.
Last October, analysts were expecting that a looming shortage of oil would push crude prices to $100 a barrel.
Today, they expect supply to exceed demand in early 2019. As a result, oil prices have plunged more than $20 a barrel since the peak of $87 a barrel (Brent crude benchmark) in early October.
Locally, pump prices of gasoline and other petroleum products have started to fall as well. In the past five weeks, the price of diesel has gone down by P5.05 a liter, and that of gasoline by P7.50 a liter.
Inflation is another menace to the country’s economic growth story.
Last October, inflation rose 6.7 percent year-on-year, the same rate of increase as last September. What was significant in the numbers, however, was that the month-on-month increase in prices of basic commodities further eased to 0.3 percent last month from 0.8 percent in September, and the peak so far this year of 0.9 percent last August.
This means that, while consumer prices still rose last month, these were not as fast or as high as last September’s increases.
The rising inflation since the start of the year has affected overall economic growth. In the third quarter of 2018, economic growth slowed to 6.1 percent from 6.2 percent in the second quarter, and 7.2 percent in the same period in 2017.
While the government was not too happy about the growth rate, it said it was comforted by the fact that the country remained one of the fastest-growing economies in Asia.
One factor for the slower growth was that the agriculture sector grew by only 0.2 percent, offsetting developments in the services industry, which expanded by 6.9 percent.
A lasting solution to this, according to Socioeconomic Planning Secretary Ernesto Pernia, is to reform the legal framework surrounding agricultural development and agricultural trade, especially rice and sugar; he urged Congress to fast-track the passage of the rice tariffication bill to generate funds for agricultural programs.
This brings us to another favorable development on the local front. Last week, the Senate passed the rice tariffication bill on third and final reading and expressed optimism that the chamber would be able to immediately reconcile its version of the measure with that of the House of Representatives, which passed its version of the bill last August.
President Duterte had certified the bill, which would lift restrictions on rice importation, as urgent.
The bill will replace the current system of imposing quantitative import restrictions on rice with tariffs. Under the bill, rice imports from the Association of Southeast Asian Nations will be slapped a tariff of 35 percent, while imports from non-Asean countries will be charged 50 percent.
This will improve the availability of rice in the country to prevent artificial shortages, reduce prices in the market and curtail the prevalence of corruption and the operation of cartels in the sector — factors that have caused rice prices to rise sharply this year, adding fuel to the surge in inflation.
There are indeed positive developments here and abroad that can make the country look forward to 2019 with more optimism. An increase in the excise tax on gasoline and other petroleum products scheduled for implementation on Jan. 1, 2019, has also been suspended by the government. That should ease up inflation some more, and help Filipino consumers cope with the rising cost of living.