By Corina Oliquino

MANILAJapan-based investment bank Nomura said the Philippines is “unlikely to slip into an exchange rate crisis anytime soon” as the coronavirus pandemic triggers global recession fears, battering financial markets worldwide.

Despite its positive assessment, Nomura warned the country could be the next coronavirus hotspot among emerging market (EM) economies and could put the peso at risk.

Nomura said monetary authorities of at-risk countries may need to reverse course and hike rates to “defend their currencies.”

“A weaker currency, for one, can accelerate inflation as it increases import costs, which in turn trickle down to local prices,” the global bank said

“With weaker healthcare systems, EM countries need to be early and aggressive with lockdowns but in practice that is a daunting challenge in densely populated cities and poverty-stricken slums where social distancing is hardly an option,” it added.

The global bank and its updated Damocles index, an early warning indicator which correctly forecast 67 percent of the last 54 currency crises, counted the Philippines as “among the countries whose currencies appear to be immune to the coronavirus fallout.”

In a report by The Philippine Star, only the Philippines, India, Bulgaria, Peru, Russia and Thailand got a Damocles score of zero or very low risk of a currency crash.

The Damocles system uses macro-economic and financial variables to assess whether an economy is vulnerable to a currency crisis, with a score above 100 suggesting vulnerability in the next 12 months.

Nomura noted that receiving a zero Damocles score “separates countries from other EM economies, which are more vulnerable to investor dumping during the coronavirus epidemic.”

According to the bank’s index, Egypt received the highest Damocles score out of 30 countries at 176, followed by Ukraine at 138, Sri Lanka at 110, Pakistan at 104 and Turkey at 104, making them vulnerable to an exchange rate crisis.

“Many EM currencies have depreciated sharply this year. Under normal circumstances, this would result in an undervaluation of currencies but these are not normal times,” the global bank said, noting EM central banks have been cutting interest rates to save their economies from deep recession as the pandemic force leaders to impose “draconian lockdowns” which could freeze economic activity.

In the Philippines, the Bangko Sentral ng Pilipinas (BSP) last April 16, cut policy rates by 50 basis points, weakening the peso as it closed at ₱50.80 against the US dollar.

Economists expect OFW remittances to drop this year

In another report by The Philippine Star, ANZ Research chief economist for Southeast Asia and India Sanjay Mathur said remittances from OFWs are likely to take a hit this year due to displacements and travel restrictions due to the coronavirus pandemic.

“Based on these headwinds, the official projection for even a downwardly revised two percent increase in remittances in 2020 still seems optimistic. In all likelihood, remittances will contract this year,” Mathur said, with the Bangko Sentral ng Pilipinas also likely to lower the projected growth in OFW remittances this year by two percent from the original target of three percent.

“As remittances play a seminal role in supporting growth in the Philippines, a fall in remittances will have strong repercussions,” Mathur warned, noting OFW remittances accounted for over seven percent of the country’s gross domestic product (GDP) over the last

“Although this ratio has been secularly declining, it remains much higher than foreign direct investment flows. On an international comparison, the Philippines is the fourth largest recipient of remittance flows,” Mathur added, noting weaker remittances would “adversely impact a wide range of economic activities such as consumption and investment.”

Overseas recruitment and migrant migration policies expert Lito Soriano, on the other hand, said job losses among OFWs could range between 50,000 to 100,000 should the government introduces job preservation measure.

Soriano said less than ₱3 billion in probable OFW remittance losses by the end of 2020, a 10 percent decline from the $30 billion in 2019, where remittances hit record levels of $33.47 billion.