The Philippines could sell more debt next year to help pay for reconstruction following Typhoon Haiyan, forecasts Juzhong Zhuang, deputy chief economist at the Asian Development Bank.
Although the disaster, which has so far claimed more than 3,000 lives, is not expected to seriously damage the country’s economic growth, tax revenue as a proportion of GDP is relatively low in the Philippines, limiting the government’s wiggle room, he told FinanceAsia.
“The fiscal position has improved in recent years and the government may have to borrow,” Zhuang said. “That is one of the options.”
Debt as a percentage of GDP is about 50% and so Manila is not expected to have any undue problems accessing debt markets.
The Philippines has traditionally been one of the most active debt issuers among emerging market countries and is due to sell bonds totalling $500 million into the local market on November 28.
“I think the government can manage and they wont get into trouble, especially with international support,” he added.
That said, according to local media reports, the Philippine government will increase its infrastructure spending next year from 360 billion pesos ($8 billion) to 420 billion pesos as it attempts to rebuild.
Huge swathes of Eastern Visayas, including the flattened city of Tacloban, has been all but wiped out by the typhoon and part of the problems hitting rescuers has been poor existing infrastructure.
“The Philippines is one of the most disaster-prone countries in the world, so it does mean they need to keep improving the economy. And to do that they need good infrastructure, adequate human capital, stable macro-economics, and an effective natural disaster response system.”
A sizeable issue would therefore be an interesting test of confidence in the country following the disaster and an interesting barometer of how investors see its economic growth story.
That growth has earned it an investment grade rating from Moody’s, Standard & Poor’s and Fitch in the past year but is seen slowing. The ADB is expected to modify downwards in December its estimate of 6.1% GDP growth for 2014.
Zhuang also expects localised inflation in the next few months as food prices rise in the affected areas.
But he said this specifically is unlikely to affect the country’s growth outlook since inflation in the Philippines was already expected to rise next year.
Zhuang said Manila should be able to meet its 3%-5% inflation target for 2014 without any problems.
As part of this, he said remittances from the huge number of Filipinos working overseas would give the government lots of support in the next year.
“To some extent it is a cushion against shock. Some countries don’t have it [but] they are very important and will be very strong this year,” he said.
He also suggested that there would be a role for private equity to play as the government looks to fund the rebuilding work.
“For reconstruction you will need a lot of government money but the private sector will have a role to play”, he said.
