The Chairman of the Financial Stability Coordinating Council (FSCC) said that capital investment, consumption and a strong banking system must allow Philippine economic growth to continue.
“The board remains cautiously optimistic about the country’s prospects but is realistically grounded for the possibility of change,” said Philip, FSCC Chairman and Governor of the Republic of Bilipinas Bangko Sentral in the 2022 Financial Stability Report released on Tuesday.
“With the former, consumption remains strong, the market invests in durable equipment, and the banking system remains strong,” he added.
“With the latter, we are fully aware of the spillover effects of supply bottlenecks and tightening financial conditions in advanced economies.”
The FSCC, which first met in 2011, is an interagency body that meets quarterly to discuss potential risks and decide on policy interventions. It is chaired by the Bills Payment Settlement Chair (BSP) with the directors of the Department of Finance, the Securities and Exchange Commission, the Insurance Commission, and the Philippine Deposit Insurance Commission as members. The National Treasurer is also a private member.
“We need to address systemic risk issues as they are unfolding today, but we must also consider how these actions will affect us in the future,” the board said in the report.
She noted that the market is “going through a storm” that is global in nature. Supply bottlenecks persist and inflation has prompted monetary authorities around the world to raise interest rates, which carries the cost of weak economic growth.
The central point, the council said, is that “we live in a highly interconnected world defined by interdependent risks”.
“These risks generate new vulnerabilities and these vulnerabilities create further uncertainty. Furthermore, these risks can – and do – ripple through the global economy, adding an additional dimension.”
He noted that this is important for emerging markets and small, open economies, as they take global prices “for granted” and rely in particular on imports to drive their economies.
“The point to be made, however, is that different jurisdictions experience this storm from different initial conditions,” the FSCC said.
For the Philippines, she noted, third-quarter GDP growth demonstrated that the country’s recovery from the COVID-19 pandemic “still has momentum, despite the hamper posed by storm conditions globally.”
“We are facing high inflation from ‘original sin’ supply bottlenecks and possibly strong demand as well,” she added.
“The least possible outcome is for the authorities to be caught by surprise,” Medalla said in the report.
“This is the main reason why we invest in the systemic risk management agenda,” he added.
“The ability of the financial system to continually provide its stakeholders with needed products and services depends simply on how we nurture the system’s resilience to cyclical shocks which is often amplified by how interdependent the stakeholders themselves are.”