The Asian Development Bank recently urged the Philippines to manage its ballooning debt capacity proactively as the country and the rest of the emerging markets are expected to wade through turbulent waters with the looming US Fed hikes.
ADB economist Cyn-Young Park said an immediate challenge for the region is to strengthen macroprudential surveillance and preempt new sources of financial instability. Impending US interest hikes are also expected to exert significant impacts on Asian economies through trade, exchange rates, and financial markets.
Park warned that Fed’s tightening, as what happened several times in the past, leads to economic slowdown no just in the US, but also in economies like the Philippines.
ADB said Debt has increased across economies as countries expand fiscal policy to address the pandemic. In the Philippines, debt has swelled to another record high, breaching the P12-trillion mark as of end January amid continued efforts to fund the pandemic response.
“The risk of debt vulnerability remains high, especially for the economies facing high external debt service burden while sustaining large structural current account deficits and holding insufficient foreign exchange reserves,” Park said.
“In order to mitigate external vulnerabilities, more proactive debt management is needed, for example by lengthening the maturity structure and building a more sustainable debt service profile,” she added.
Further, she emphasized that governments in the region need to carefully monitor the risks of higher inflation and prepare to rein in inflation expectations. Headline inflation in the Philippines has yet to move upward, but ticks are already seen in the coming months as the crisis in Ukraine puts pressure on global oil prices.
The combination of record levels of debt, the US Fed tightening, and the conflict in Ukraine spell turbulence for economies all over the globe in the coming weeks or months. Among those factors, the only one our government can control would be debt. How we manage it so we can still navigate the turbulent waters as we recover from the COVID pandemic and all other ongoing crises will be the challenge our government officials will have to face.*
