Development Planning Secretary Arsi Balisacan estimates that government will need about P429 billion to fund its response to the ongoing crisis. The amount will be used for what is called the Unified Package for Livelihoods, Industry, Food and Transport (UPLIFT).
The estimated funding outlay is for the remaining three quarters of the year. The money will be used for fuel subsidies, financial assistance to vulnerable sectors and logistics support for agriculture. The program imagines cash aid for the transport sector as a major component to reduce pressure for fare increases. Much will also be made available for emergency fuel purchases to support our generating plants to guard against power outages that will certainly be damaging to the domestic economy.
Should the crisis end quickly, Balisacan estimates that we will need only about P205.2 billion in emergency funds. But this is unwarranted optimism on Arsi’s part. The full brunt of the energy crisis – due to supply chain breakages, damaged drilling and refining capacity along with infra losses – have yet to hit us. The adverse effects are lagging.
For instance, no one is sure if aircraft fuel will be available to support current levels of demand. The European airline industry estimates its own stockpile at 50 days. Ours could be shorter. This will affect our already limp tourism industry.
We have yet to see the effects of the fertilizer shortage on the next harvests. The price of grains in the international market is important for us. We import a substantial portion of our staple food needs.
The economies of the Persian Gulf produce a substantial portion of petrochemical products necessary for a wide range of industrial uses. Apart from urea, the Gulf countries supply a substantial amount of helium and sulfuric acid used by the rest of the world. We cannot yet calculate the full impact of supply breakages on major electronics producers.
The headline price for Dubai crude does not tell us the full price impact. Shipping costs for crude have jumped up to 700 percent because of the war. Maritime insurance costs have spiked for obvious reasons. Add to all these the transit fees Iran intends to collect from ships transiting the Strait of Hormuz.
As the prospect of fuel shortages looms larger, these costs escalate unpredictably. Even as Dubai crude is priced at just under $100, some countries effectively shell out over $200 per barrel of oil when all the associated costs are added in.
Even as the full weight of the disruption has yet to hit consumers worldwide, the unholy war against Iran is in danger of both escalating and widening. The US has used the temporary ceasefire to deliver more armaments to its forces in the Middle East. Both Russia and China have rapidly delivered even more potent arms to Iran.
China has sent warships to the Indian Ocean to ensure safe passage for their shipping. The economic giant relies up to 90 percent of its oil imports on Iran. It is in no mood to sit back and allow the US to constrict its vital supplies unchallenged.
One report has it that US diplomats have sent word to Beijing, through third parties, that there is no intention to attack Chinese shipping. The Trump blockade is there, they say, mainly for American domestic political consumption. But who can trust the Immoderate Trump to exercise moderation as his political stocks sink?
The funding estimate for the Philippine government’s response seems understated. It looks like a budget for populist subsidies and not much more. It does not include items for enhanced public investments as a countercyclical measure to save our economy from stagnating. There is no evident plan to quickly develop our self-reliance in energy and food.
Understated as Balisacan’s estimate might seem, it is not accompanied by a clear plan on how the money will be raised. So far, government has decided to limit suspension of excise taxes on LPG and kerosene. Nevertheless, this will reduce public revenues.
Government could raise taxes. But this will be politically costly for an administration so concerned about its public support it made the President run a sprint and lift a sack of rice to assure citizens he is not ill.
As we did during the COVID emergency, government can use a variety of instruments to access international funds. But debt is not going to be cheaper. Not with the debt load we already have. Not with the meager revenues we are able to raise through existing tax rates.
Indicative of the conditions we now suffer, there is a large possibility that the Monetary Board will raise interest rates pretty soon. This after a long series of rate reductions over the past two years to help stoke expansion. Needless to say, raising policy rates will pull down our growth prospects.
The World Bank has downgraded our growth forecast along with the rest of the global economy. It is imaginable, at this point, that our GDP growth rate could drop to approximate our population growth rate. This means the poverty rate rises.
We incurred a lot of debt to survive COVID. We continued borrowing heavily under the Marcos II administration to fund subsidy programs – and a shocking volume of corruption. Our debt service now exceeds the benchmark for what is considered prudential.
The market will penalize our less than admirable fiscal behavior.