Full liberalization of RE market sought

The incoming Marcos administration should consider the full liberalization of the renewable energy (RE) sector as part of the government’s efforts on climate change mitigation, Socioeconomic Planning Secretary Karl Kendrick T. Chua said.

“We are trying to fully liberalize all renewable energies; tidal, solar, and wind. In fact, the Economic Development Cluster has a resolution pushing for that. That will, I think, create a better balance between the dirty sources of energy and the cleaner ones,” he said at a briefing on Monday.

Energy officials previously said new laws may be needed to relax the foreign ownership restrictions for wind and solar projects.

In 2020, the power generation mix in the Philippines was 57% from coal-fired facilities, 21% from renewable energy, 19% from natural gas, and 2% from oil.

Mr. Chua, who steps down from his post on June 30, also expressed support for the new law aimed at regulating and developing the country’s electric vehicle (EV) industry.

“(The) electric vehicle law which will help us shift to cleaner electric vehicles rather than gasoline or diesel ones,” the National Economic and Development Authority (NEDA) director-general said.

Mr. Chua also backed the imposition of a tax on single-use plastics.

The Department of Finance (DoF) had proposed a P20 excise tax per kilogram of single-use plastics under package 1 of the fiscal consolidation plan, which is aimed at generating fresh revenues amid the country’s record-high debt.

During the same briefing, NEDA Undersecretary of the Regional Development Group Mercedita A. Sombilla presented recommendations to accelerate climate action, such as ensuring new programs and policies “support climate-resilient and low-carbon development,” and boost awareness on climate change in local communities.

She also proposed scaling up mobilization of climate finance and strengthening institutional capacity to track these climate finance flows.

“The tight fiscal space does not preclude the government from implementing climate change adaptation and mitigation actions,” Ms. Sombilla said.

“While we’ve continued to make use of government’s limited resources to fund development projects including infrastructure, social protection, and agriculture, we can already make adjustments as early as the design phase to make the projects more climate and disaster resilient without incurring significant additional economic costs due to avoided losses and damage.”

Ms. Sombilla said the government can also maximize the benefits of these projects by reducing or eliminating any greenhouse gas emissions.

Under the Paris Agreement, the Philippines committed to reduce greenhouse gas emissions by 75% by 2030.

The Philippines is ranked fourth most affected by impacts of climate-related extreme weather events, according to the 2021 Climate Risk Index.

“There are many things that do not require money, but a change of behavior and a better understanding of the consequences of inaction,” Mr. Chua said.

Climate change and smart infrastructure are expected to be part of the next Philippine Development Plan, which will be crafted under the next Socioeconomic Planning Secretary Arsenio M. Balisacan.

“Secretary Balisacan really recognized this because he has been alluding to including climate change as a particular challenge in all the development activities that we will be doing,” Ms. Sombilla said.

NEDA’s climate change priorities also include helping local government units develop climate-risk informed local land use and development plans, and pushing for the passage of the National Land Use Act.

Source: bworldonline

New taxes needed, Balisacan says

New taxes may have to be introduced to fund the incoming Marcos administration’s priority projects, but the timing would have to be carefully considered, Socioeconomic Planning Secretary-designate Arsenio M. Balisacan said.

“If you want more public services, if you want to invest a lot into our health and education, and social sector, and to our farmers, you must have sources of money for that. Obviously, you can only go so far with an improved tax administration,” he said.

Asked if new taxes would be introduced in the next six years, Mr. Balisacan replied: “I think we should. Part of the fiscal consolidation is to eventually also come up with new sources of tax.”

Incoming Finance Secretary Benjamin E. Diokno has said that he wants to avoid new taxes for now, preferring to focus on improving tax administration via digital processes.

The main issue, Mr. Balisacan said, would be timing the imposition of new taxes, especially with the country still recovering from a pandemic-induced recession.

“You don’t want to raise, I suppose, taxes when economic conditions are difficult,” the incoming National Economic and Development Authority (NEDA) director-general said.

Economic managers are aiming for a 7-8% gross domestic product growth this year, but high inflation threatens to slow the country’s recovery.

The Bangko Sentral ng Pilipinas last week raised its average inflation forecast for this year to 5% from 4.6% previously, well above the 2%-4% target band.

The Department of Finance (DoF) last month unveiled a fiscal consolidation plan which aims to raise an average of P284 billion in fresh revenues every year for the next 10 years to repay the P3.2-trillion additional debt incurred during the pandemic.

The plan involves new tax measures such as value-added tax (VAT) on digital service providers; excise tax on single-use plastics, motorcycles and luxury goods; and tax on gaming and cryptocurrency.

Mr. Balisacan noted that some sectors are still undertaxed.

“I suspect that mining is one [where] there are scopes for improving the royalty that can be charged to ensure that these mining resources are properly managed and sustained,” he said.

As part of the first package of the fiscal consolidation plan, the DoF also proposed establishing a single and rationalized fiscal regime applicable to all mining agreements. The DoF estimates this will generate P11.4 billion on average per year.

Mr. Balisacan said the government should consider pollution tax and more “sin” taxes.

“For example, I don’t understand why luxury vehicles are taxed so low, even vehicles are taxed so low, compared to our neighbors. And I think that while we’re trying to address transport issues, public transport issues, that should be part of the solution rather than just building more skyways,” he said.

The Duterte administration has managed to pass the initial packages of its comprehensive tax reform program, which involved lowering personal income tax, tax amnesty for delinquent taxpayers and higher sin taxes on cigarettes, heated tobacco products and alcoholic beverages.

Also approved was the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which cut corporate income tax.

However, reforms in real property valuation and passive income taxation failed to hurdle Congress.

“Congress didn’t have the appetite for it, for the other components of the reform. Now it’s the burden of this new administration to complete these other components. My colleague (Mr. Diokno) said that we need to study our options…address all these fiscal issues to ensure that the growth will be sustainable,” Mr. Balisacan said.

Source: BusinessWorld

Peso breaches 55:$1, now Asean’s worst performer

The peso on Monday breached the 55:$1 mark at an intraday weakest of 55.15 against the dollar, raising concerns that the local currency is sliding too fast despite government assurances that it remains stable.

The last time the peso traded at an intraday low that breached 55:$1 was more than 16 and a half years ago, or since Oct. 25, 2005, at 55.15 to $1, according to Rizal Commercial Banking Corp. chief economist Michael Ricafort. On that day, trading closed at 55.26:$1.

“Since the start of 2022, the peso’s depreciation of 7.4 percent is now the worst in Asean (Southeast Asian markets),” Ricafort said. The peso started this year at 51 to $1.

The local currency eventually ended Monday’s trading at 54.78 to a dollar, a gain of 20.5 centavos from 54.985 on June 24.

After depreciating for eight straight days, Ricafort said the peso closed stronger “as global oil prices recently lingered among one-month lows and the 10-year US Treasury yield lingered among two-week lows.”

Analysts are worried about the speed that the peso has been depreciating, and that this might come to the point when the Bangko Sentral ng Pilipinas (BSP) would have to use its foreign exchange reserves to arrest the peso’s plunge.

Emilio Neri Jr., lead economist at Bank of the Philippine Islands, questioned government assertions that the peso was middling among Asian currencies — neither suffering the worst or faring the best, but relatively stable.

Faster inflation

“On both a year-on-year (today compared to the same day last year) and a year-to-date (today compared to the start of this year) basis, the peso may soon overtake the South Korean won as the second weakest currency in Asia, with only the Japanese yen left depreciating more than the peso versus the US dollar,” Neri said.

“Now that we are trading near 55.10, the peso is down by more than 5 percent in about a month… not a very reassuring pace of decline,” he added.

Neri said such a rate of depreciation for the peso would result in inflation expectations rising farther above the government’s target range of 2 to 4 percent. The latest reading put inflation at 5.4 percent in May.

Nicholas Mapa, a senior Philippine economist at ING Bank, also warned of faster inflation and a weaker peso ahead, blaming the BSP’s lack of intention to increase interest rates more aggressively.

Mapa has raised the alarm that the current situation was very much like that in 2018, when the BSP waited too long to increase rates and eventually spent billions of dollars to stop the decline of the peso.

No need to panic

But the alarm is not heard at the BSP, where officials maintain that interest rates need not rise in lockstep with US rates.

They reason that the Philippines and the United States are facing different challenges. For example, inflation in the United States is at a 40-year high at 8.6 percent while inflation in the Philippines remained “manageable” at 5.4 percent.

“When we look at the rate on a (year-to-date) basis, the average (exchange rate) is at P51.98 (to a dollar),” BSP Deputy Governor Francisco Dakila Jr. said. “This is very much within the DBCC (Development Budget Coordination Committee) assumption of P51-P53 [per dollar] for 2022.”

Pantheon Macroeconomics seems to share the BSP’s confidence about the peso, saying in a commentary that ample foreign exchange reserves would see the peso through.

BSP data showed that at the end of May, the country’s gross international reserves were at $103.53 billion, or equivalent to 9.1 months’ worth of imports of goods and payments of services. Such reserves are considered adequate if they can cover the foreign exchange needs for at least three months.

“Crucially, selling off foreign exchange reserves to lean against overly excessive downward volatility in domestic currencies will remain a big tool in policymakers’ arsenal, and one that still has substantial ammo left,” said Miguel Chanco, Pantheon Macroeconomics’ chief economist on Emerging Asia.

‘Currency chaos’

Still, the United Kingdom-based research firm described the current situation as a “currency chaos,” with “currencies tanking” in emerging Asian economies, including the Philippines.

“Currencies in Asia have been pummeled in recent months, due in large part to the strong and persistent downward pressure that the post-Ukraine invasion spike in commodity prices has had on trade balances,” Chanco said.

This was blamed on the inactivity of most central banks in five economies referred to in a commentary—the Philippines, India, Indonesia, Thailand and Vietnam.

Monetary authorities in the latter three countries have kept their policy rates unchanged while influential counterparts such as the US Federal Reserve have shown increasing aggressiveness with bigger and more frequent hikes.

The BSP and the Reserve Bank of India have begun policy tightening, with interest rates increases totaling 50 and 90 basis points, respectively. In comparison, the US Fed has raised its policy rate by a total of 150 basis points. (One percentage point is equivalent to 100 basis points.)

In two policy meetings held last week and in May, the policymaking Monetary Board of the BSP raised the benchmark interest rate for overnight borrowings from banks, twice by 25 points or 0.25 percent. The policy rate is now at 2.5 percent after languishing at a record low of 2 percent from November 2020 to April 2022.

The much bigger jump in US interest rates has made investors flock to the US debt market, boosting demand for and consequently strengthening the dollar.

“Not surprisingly then, [emerging market] Asian currencies have been plummeting,” Chanco said.

Source: Inquirer.net