According to Nomura Global Markets Research, the Philippines’ fiscal position will not be significantly affected by an increase in oil prices if there are no fuel subsidies provided by the government.
According to a note from Nomura Global on Sept. 29, the Philippines is among three Asian economies that will avoid facing financial repercussions due to the expensive cost of fuel.
According to the source, there are only three economies that do not offer fuel subsidies. This means that an increase in oil prices will result in higher inflation, but it should not negatively impact fiscal finances. These economies are Singapore, the Philippines, and Hong Kong.
“Omitting fuel subsidies may lead to a greater effect on inflation in the Philippines,” the statement stated.
Some lawmakers have suggested suspending fuel product taxes in order to reduce pump prices, as there have been multiple consecutive increases in fuel prices from July to September.
This week, fuel companies decreased the cost of gasoline by P2 per liter and kerosene by P0.5 per liter. On the other hand, they increased the price of diesel by P0.4 per liter.
The rise in pump prices and electricity rates likely caused an increase in inflation during September. According to a survey conducted by BusinessWorld with 17 analysts, the median estimate for September’s inflation is 5.4%, falling within the Bangko Sentral ng Pilipinas’ forecast range of 5.3-6.1%.
If it actually happens, the inflation rate in September will be higher than the 5.3% recorded in August, but lower than the 6.9% from the same time last year. This would also be the highest recorded rate since June’s 6.1%.
The release date for the consumer price index (CPI) data is October 5th, which falls on a Thursday.
Nomura Global has previously predicted that a 10% increase in the price of oil will result in a 0.2 percentage point (ppt) increase in headline CPI, a 0.3 ppt decline in the current account balance, and a potential decrease of up to 0.1 ppt in economic growth.
In certain nations, the effect is not as significant – approximately 0.1% of their gross domestic product (GDP) for every 10% increase in oil prices in South Korea, and 0.2% of GDP in India, Indonesia, and Thailand.
Governments use various methods such as retail price controls, subsidies, and tax cuts to protect consumers and alleviate the cost of living. This helps prevent inflation expectations from becoming unstable. However, this can also put a financial strain on domestic oil companies, resulting in a fiscal impact.fl
“It was reported that the impact of this affected both the on-budget and off-budget areas.”
On this occasion, Asian governments are expected to take action to reduce the impact of expensive oil prices on consumers.
Nomura stated that the reason for this is due to the fact that economies have recently begun to exhibit signs of improvement after a period of increased food and oil costs caused by the start of the Russia-Ukraine conflict. Additionally, the risk of food prices is increasing due to the effects of El Niño.
The article also mentioned that there has been a decrease in consumer demand this year compared to 2022. Upcoming elections in India and Indonesia may also result in the continuation of fuel subsidies.
“According to Nomura, the energy policies in Asia are unclear and the government’s use of fiscal support may lead to temporary cash flow issues for oil refineries. Additionally, if gas and coal prices rise along with oil prices, there could be a greater financial burden for electricity.” – Keisha B. Ta-asan