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“Perfect economic storm” looms, be prepared!

/ 09:00 AM June 28, 2022

Oil price hikes continue to hit hard on consumers and the economy due to combined effects of the Ukraine-Russia conflict, world oil crisis, tightening supply chains and weakening of the Philippine peso against the dollar.

Based on the government’s oil monitoring report, comparing prices last January and today diesel has almost doubled its price with a whopping increase of 97 percent or P45.90/liter, from only P47/liter six months ago. Kerosene jacked up 76 percent or P39.75/liter from only P51.91/liter in January. Gasoline has risen by P30/liter from only P59.63/liter in January which means a 50.3 percent hike.

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And worldwide, the runaway oil prices continue and even OPEC’s increase in oil production cannot solve it. Saudi Energy Minister Prince Abdulaziz bin Salman says, “the world needs to wake up to an existing reality, it is running out of energy capacity at all levels”.

If one looks at worst case scenarios, Albay congressman and economic analyst Joey Salceda revealed that JP Morgan has set WTI crude at $185/barrel maximum which would put our Diesel prices at P135/liter, Gasoline a P145/liter, and Kerosene at P129/liter.

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Salceda also mentioned Stratas Advisors which has a lower projection of WTI Crude at $150/barrel and that would put our diesel prices at P109/liter, Gasoline, P117/liter and Kerosene at P104/liter. The latter seems to be the trend today.

Last month, our government’s Development Budget Coordination Committee (DBCC) increased its macro-economic assumptions at $90 to $110 per barrel of our benchmark DUBAI crude. This was a big departure from the previous ceiling of only $80 under the TRAIN LAW and our national budget. Today’s pricing of Dubai crude iat MOPS Singapore is $111 per barrel and still increasing.

But another serious threat looms, and this is the feared global recession that may happen in the next 18 months. Today, central banks all over the world including the Philippines are hiking their interest rates to control their inflation. A situation where experts call it a “perfect economic storm” worldwide.

With President Bongbong Marcos coming in with a strong mandate, people are awaiting his pronouncements on the unabated oil prices and its effect on rice, meat sugar, galunggong, sardines, bread, electricity and even jeepney and tricycle fares. Under the TRAIN LAW, if the price of Dubai crude exceeds the $80/barrel ceiling for three months, it is automatically suspended. Now, the question remains, will BBM and the incoming 19th Congress have a better solution?

Government collects P14.24 tax on every liter of Diesel, P 19.26 for every liter of gasoline and P13.89 for every liter of Kerosene. If these collections are suspended, will all sectors benefit? Why not use the VAT collection on the higher oil prices, an incremental income over and above the ceiling and directly help the most affected people? Estimates are saying that government has accumulated P75.2-B in these additional VAT alone on higher priced oil products.

In the world financial crisis of 2008 where oil prices also increased, then PGMA implemented KATAS NG VAT (KNV) out of windfall collections amounting to P4.5 B and funded social amelioration programs. These were distributed as pantawid-kuryente, livelihood programs for PUV drivers, direct cash assistance to seniors, school feeding and fertilizer for farmers etc. This was proven successful.

Today, Albay Rep. Joey Salceda is proposing the “KATAS NG TRAIN PACKAGE” using the P75.2B VAT collections that will provide subsidies to the people, eg., Kuryente package, Fertilizer package, Typhoon Odette relief, Additional P100 monthly social pension, small fisherfolk subsidy, PUV drivers pantawid-pasada, fuel discounts including TNV, delivery riders, and tricycle drivers. I would also suggest subsidies for Kerosene and LPG users particularly the carinderias and small restaurant businesses who offer retail cooked food to a great number of our citizens.

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For his part, BBM says he is also not interested in suspending the oil excise tax as this was a “blanket solution” and may not help those affected. “I prefer to handle the problem on the other side of the equation and provide assistance to those in need”, he said.

So there, we have the available “ayuda” funds from excess VAT collections due to higher than $80/barrel on Dubai benchmark by DBCC. But the ball is on the court of PBBM and the new leaders in Congress.

In the next few days and the oil excise tax as preliminary test , we will find out if PBBM has that renowned wisdom and strong “political will” to really protect our people from rising prices, and ultimately against the upcoming “perfect economic storm”.

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