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Inflation a ‘headache’ for next leader

THE incoming Philippine president will need to treat inflation as a top economic priority. The prolonged pandemic has widened income disparity in the Philippines and increased unemployment.

Sonia Zhu, an analyst at Moody’s Analytics, said “Inflation will be a big headache for the new Philippine president.” She noted that leading presidential candidates former Senator Ferdinand R. Marcos, Jr. and Vice-President Maria Leonor G. Robredo have both floated fiscal support with Mr. Marcos suggesting fuel subsidies and Ms. Robredo proposing targeted social aid for the poor.

“Inflation management has become a key policy point. Since early 2022, household discretionary income has come under threat from higher prices for staples,” Zhu said.

Headline inflation sizzled to a three-year high of 4.9% in April, driven by soaring food and energy prices amid the Russia-Ukraine war. This was beyond the central bank’s 2-4% target, and the 4.3% forecast for 2022. Commodity prices are expected to edge higher in the next months amid supply chain disruptions, China lockdowns and concerns over oil supply.

Pantheon Chief Emerging Asia Economist Miguel Chanco said the next president should prioritize reviving the Philippine economy, whose recovery has “easily been the most lackluster in emerging Asia.”

“We’d even go so far as to say that it doesn’t really matter who takes the helm at Malacañan Palace, as any future administration will be preoccupied with repairing the economic damage caused by the pandemic since 2020, with economic reforms likely to take a backseat,” he said.

The Philippines’ gross domestic product (GDP) grew by 5.7% in 2021, after a record 9.6% contraction in 2020. The government is targeting 7-9% growth this year, although multilateral agencies are forecasting below-target growth due to the Russ i a - U k r a i n e war.

“Based on our current forecasts, real GDP will remain some 15% below the pre-COVID trend by the end of this year,” Chanco said. The next adm i n i s t r a t i o n also has to address the weak labor market, he said.

The unemployment rate fell to 5.8% in March. “Consumption, the economy’s mainstay, is likely to stay under pressure, with the sluggish job market, the rebuilding of savings lost since 2020 and, more recently, fast-rising inflation, weighing heavily on spending decisions,” Mr. Chanco said.

Think tank IBON Foundation Executive Director Sonny A. Africa said the new president should deal with the “considerable economic scarring” from the strict lockdowns during the early part of the pandemic.

“The current economic managers downplay the National Government debt burden it has substantially bloated, which will weigh heavily on public spending on social and economic services,” he said.

Outstanding National Government debt hit a record P12.68 trillion at end-March. The debt-to-GDP ratio hit a 16-year high of 60.5% in 2021, which is slightly above the 60% threshold considered manageable by multilateral lenders for developing economies.

Ms. Zhu said that it may be up to the central bank to do the heavy lifting to cool inflation. “The Philippines might not have the financial capacity to provide such fiscal cushioning. MANILA BULLETIN