The Institute of International Finance (IIF) has determined that alongside Thailand and India, the Philippines is among the most exposed emerging economies in Asia to the energy shock induced by the Middle East war, due to its heavy reliance on imported fuel and limited fiscal buffers.
The IIF report said those countries are among the most vulnerable to rising food and energy costs, as it cited the commodities’ high weight in consumer price index (CPI) baskets and the countries’ exposure to fuel imports and Gulf supply routes, as well as limited capacity to absorb price shocks.
“Combining these indicators highlights a group of economies – most notably Thailand, India, and the Philippines – that have meaningful exposure to prolonged disruption in Gulf energy flows with limited fiscal space to absorb the shock,” it said.
Fuel prices in the Philippines have already posted two rounds of hikes at more than P10 per liter since the war escalated three weeks ago. This came as global oil benchmarks surged past $100 per barrel amid supply disruptions linked to the continued constraints in the Strait of Hormuz.
The national government can only do so much as it does not have any control over fuel prices due to the 1998 Oil Deregulation Law, which liberalized the downstream oil industry and removed price controls. This policy is now under renewed scrutiny as prices climb.
Economic managers have warned that inflation could spike to as high as 7.5 percent in March if elevated oil prices persist. State statisticians have also flagged the risk of spillover effects across transport,food, and other key sectors.
Additional pressure is expected from a weakening peso, as it has breached the P60 per dollar level.
The country’s limited macroeconomic buffers remain a key concern, as the institute noted that governments often absorb price shocks to shield consumers where fuel prices are regulated. Philippine lawmakers are now racing to approve measures that would allow the president to suspend excise taxes on fuel if global oil prices breach $80 per barrel for a sustained period.
It would be different if we were among the most exposed emerging economies, but somehow managed to be prepared for such eventualities as this war and energy shock. But based on how our government is scrambling and struggling to find timely and calibrated solutions, it is obvious that we should’ve been better prepared. Now that we know what it is like, hopefully our government can put up the necessary safeguards and action plans for the many scenarios that are now possible under this new world order.
We should no longer allow ourselves to be caught off guard again.*
