Barclays raises growth forecast for Philippines this year

Financial services firm Barclays has become the latest international financial institution to raise the 2013 growth forecast for the Philippines.

In a recent report, Barclays said that the Philippines is now seen to grow by 6.2 percent this year and 6.3 percent in 2014.

Barclays, which has earlier projected the Philippines to grow by only 5.9 this year, said that based on all economic indicators, the country is poised to have one of the fastest growth rates among emerging markets in Asia.

The Philippines would likely post the third fastest growth rate among emerging economies in Asia, behind China and Indonesia, said the financial group, which is primarily based in London and has hundreds of branches around the globe, is one of the world's oldest financial firms tracing its roots to the late 17th century.

It expects China to grow by 7.9 percent this year and 8.1 percent next year. Indonesia's economy, on the other hand, is expected to expand by 6.3 and 6.4 percent in the same years.

Earlier, another British bank, Standard Chartered, said it expects the Philippines to outperform most other nations in Asia and enjoy another year of strong economic growth.

In its recent macroeconomic report, Standard Chartered said that the country's gross domestic product could grow by 5.8 percent this year and 6.1 percent the next.

The bank noted that the Philippines' economic growth in the coming years would exceed the country's 10-year average performance of 5.2 percent posted from 2003 to 2012.

While domestic consumption is likely to remain the biggest growth driver, Standard Chartered expects investment growth to pick up this year. But the bank said exports could slow down growth this year.

Based on the bank's survey, 77 percent of corporate respondents in the Philippines expect their businesses to do better this year than in 2012.

The upgraded growth forecasts for the country came after the Philippines was awarded investment grades this year by two of the world's leading rating agencies.

On March 27, Fitch Ratings gave the Philippines its first investment grade from an international credit-rating agency, by lifting its score for the country by a notch from BB+ to BBB-, which is the minimum investment grade.

Standard & Poor's followed on May 2, giving the country its second investment grade from an international credit watchdog.

The two credit-rating firms cited improvements in the country's macroeconomic fundamentals for their decisions.

These fundamentals include the declining outstanding debt of the government in proportion to the country's gross domestic product, the buildup in foreign-exchange reserves, robust economic growth rate, benign inflation and a stable banking sector.

Meanwhile, the Bangko Sentral ng Pilipinas, the country's central bank, reported Monday that the balance of payments (BOP) recorded a surplus of 274 million U.S. dollars in April compared with a deficit of 79 million U.S. dollars in the same month last year.

This brought the BOP in the first four months of this year to a surplus of 1.81 billion U.S. dollars, up by 56 percent from the 1. 16 billion U.S. dollars yielded a year earlier.

The BOP measures the country's commercial transactions with the rest of the world and shows the difference between inflow and outflow of foreign currencies, mainly the U.S. dollar.

A surplus in the BOP adds up to the country's overall reserves of foreign exchange, called the gross international reserves (GIR), currently standing at about 84 billion U.S. dollars and indicating a country's ability to pay for imports, settle debts to foreign creditors, and engage in other commercial transactions with entities from other countries.

Ironically, the strong inflow of foreign money has resulted in a huge net loss incurred by the central bank in 2012, which amounted to 95.38 billion pesos (23.8 billion U.S. dollars), nearly treble the losses in 2011.

According to the central bank, the losses it incurred over the last three years were the price to be paid for managing the enormous liquidity, which could have caused inflation to shoot up or the peso to steeply appreciate if not properly handled.

In response to the heavy capital inflows, the central bank said it has been implementing various stabilization measures to moderate sharp currency movements, adding, "However, stability comes at a price."

The central bank said it also had to engage in heavy dollar buying to temper the appreciation of the peso. Upward pressures on the local currency were caused largely by rising dollar remittances, foreign investments in the business process outsourcing sector and foreign portfolio investments or "hot money ".

"A strong peso means that exporters and other foreign-exchange earners such as overseas Filipino workers get less pesos for every dollar they convert. To moderate the strong gains in the value of the peso, the central bank buys foreign exchange by participating in the currency trade," it explained.