Economic clusters advances measures to dull effects of oil price hikes

  • The Cabinet Economic Development Cluster recommended a slew of measures, including removal of pass-thru fees imposed on truckers, to address shocks from the Russia-Ukraine war
  • Other measures include increase in fuel subsidies to the public transport sector and farm producers; expansion of oil buffer stock; and lowering Most-Favored Nation tariff of certain commodities
  • Finance Secretary Carlos Dominguez III said the impact of the crisis on the Philippines would be temporary and won’t directly affect the domestic economy, with neither Russia or Ukraine a major trading partner

The Cabinet Economic Development Cluster (EDC) has recommended a host of actions such as removal of pass-thru fees imposed on truckers and lowering Most-Favored Nation tariff of certain commodities to address potential shocks caused by the Russia-Ukraine war.
National Economic and Development Authority (NEDA) director-general and Socioeconomic Planning Secretary Karl Kendrick Chua, who is a member of the EDC, said other measures advanced by the cluster include increasing fuel subsidies to the public transport sector and farm producers; expansion of the oil buffer stock; continuation of the promotional fuel discount given by oil firms; promotion of energy conservation; implementation of service contracting in all public transport routes; and promotion of the use of electronic vehicles and the use of active transport (eg, bicycles).

Transport industry stakeholders earlier sought a reduction in government-imposed charges, fuel subsidy, fare hike, and special budget allocation as measures to help cushion the impact of increasing fuel prices.

READ: Carriers seek fuel subsidy, suspension of excise tax, cut in gov’t fees

EDC also recommended increasing the buffer stock for liquified petroleum gas from seven to 15 days; expanding supply and reducing coal price by reducing the Most Favored Nation (MFN) 7% tariff rate to zero until December 2022; and maintaining the coal buffer stock at the current 30 days minimum inventory.
To ease the impact on electricity consumers, Chua said the EDC proposed promoting energy conservation measures, including the use of technology for energy savings; staggering the increase in the power generation charge; and allowing foreign ownership of microgrids, and solar, wind and other renewable energy sources.

In the agriculture sector, Chua said the EDC recommended implementing the second phase of the Department of Agriculture’s ‘Plant Plant Plant’ program subject to availability of funds; and providing targeted fertilizer vouchers to farmers and expanding supply through bilateral discussions with fertilizer-producing countries.

Temporary effects

In a statement, Finance Secretary Carlos Dominguez III said the impact of the crisis on the Philippines would be temporary, and that a comprehensive set of measures are now being implemented.
Despite negative repercussions of the crisis in the form of increased energy and food prices, Dominguez said he is confident government can keep inflation within the 2% to 4% target and GDP growth between 7% and 9% this year.
“I would like to emphasize that we do not expect this crisis to last very long. However, there may be some lingering effects. We have seen similar crises in the past, such as in the Gulf War in 1990, the oil price shock of 2008, and also the first Russia-Ukraine Conflict in 2014, and we have weathered all of these crises very well,” Dominguez said during President Rodrigo Duterte’s televised meeting with Cabinet officials on March 7.
Dominguez pointed out that the 1997 Asian Financial Crisis and the global financial shock of 2008 had even more severe, direct and longer effects on the economy, yet the Philippines was able to overcome the challenges.
“Based on these experiences, we are confident that we have the tools and preparation necessary to help our people through this crisis,” said Dominguez, who heads the President’s economic team.
He said the conflict would not directly affect the domestic economy, as neither Russia nor Ukraine is a major trading partner of the Philippines.
“Instead, the Philippine economy will likely be collateral damage; it is as if we are hit by a ricocheting bullet,” the Finance secretary said.
He said these “indirect shocks” will likely be felt through four major channels: the commodities market, the financial market, investments, and its impact on the country’s fiscal health.
The first point of impact would be on the prices of fuel and food, as Russia is the largest exporter of natural gas and wheat, while Ukraine is the fourth largest exporter of corn.
As the conflict continues, Ukraine’s and Russia’s main trading partners—predominantly the European Union—will look to trade with other countries such as the United States and China, which, in turn, will drive up the prices of commodities in these markets as well.
The conflict will also likely cause a surge in interest rates or cost of borrowing, which was already expected to go up even prior to the crisis because of the US Federal Reserve’s tightening of monetary policy, Dominguez said.
“The conflict will increase the perception of risk in investments,” he added, which could, in turn, make investors more conservative, or decide to postpone their planned investments owing to global uncertainties triggered by the crisis.
“Once sanctions are imposed, it will take a long time for investor and consumer confidence to return to normal,” Dominguez said.
As for the impact on the country’s fiscal health, Dominguez said government support needed to protect vulnerable citizens and critical sectors most affected by the crisis will stretch state finances further.
He said measures outlined by Chua to address these potential shocks will help insulate Filipinos from the ill effects of the crisis. These measures include the need for the entire country’s shift to Alert Level I and opening of all schools to in-person classes to increase domestic economic activity and offset external risks.

The EDC’s other recommendations are as follows:

  • DA to closely monitor rice inflation, and the National Food Authority to closely monitor buffer stock;
  • Help local government units increase rice buffer stock with concessional loans from the Land Bank of the Philippines and the Development Bank of the Philippines, particularly in the procurement of post-harvest facilities and warehouses;
  • Accelerate Rice Competitiveness Enhancement Fund implementation and other parts of the national rice production program to increase local production;
  • Facilitate continuous release of Sanitary and Phytosanitary (SPS) import clearance for rice especially for shipments arriving for the lean season starting July;
  • Expand supply and reduce price of rice by extending the MFN 35% tariff rate until December 2022;
  • Increase supply and reduce price of corn by lowering the MFN tariff to 5% in quota and 15% out quota with minimum access volume (MAV) of 4 million metric tons until December 2022;
  • Import more feed wheat and produce more cassava as feeds substitute;
  • Expand supply and reduce prices of pork by extending the lower tariff of 15 percent in quota and 25 percent out quota with MAV of 200,000 metric tons until December 2022;
  • Accelerate release of imported pork from cold storage;
  • Pass the livestock and dairy bill;
  • Remove all non-tariff barriers for pork and fish;
  • Issue the Certificate of Necessity to Import for small pelagic fish (e.g., galunggong) valid from the second to fourth quarters of 2022. The supply needs an additional 140,000 MT to fill up the projected supply gap of 200,000 MT;
  • Accelerate the release of SPS clearances for chicken from the National Meat Inspection Service cold storage warehouses to push up inventory to pre-pandemic level;
  • Address the temporary restraining order on sugar imports;
  • Allow direct importation by industrial users: implement 1:1 domestic to import ratio;
  • Expand sources of wheat (e.g., India);
  • Support the mass-based Pinoy Tasty Project of the Department of Trade and Industry in partnership with the private sector, which offers bread at lower prices;
  • Promote non-wheat flour substitutes such as the Sagip-Nutri flour (made from cassava, sweet potato, monggo, etc), and banana flour;
  • Reiterate the inclusion of renewable energy and agriculture in the draft Strategic Investment Priority Plan.
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