The weak performance of the Philippine peso relative to the US dollar will affect lower-income households more than rich households, Albay Rep. Joey Sarte Salceda warned Sunday
“The bottom 30 percent of households in terms of income spend 58.2 percent of their total expenditures on food. And 24.9 percent of total food consumption in the country is imported,” Salceda noted.
“So, a peso depreciation of 25 percent increases their total spending by at least 3.64 percent because of food alone due to first round effects alone. Second round effects, or the effects of increases of imported input costs on domestically produced output, could also pressure household budgets further,” he said.
The upper 70 percent, the lawmaker noted, only spend 39.5 percent of their income on food, thus the same depreciation will only hit them by 2.47 percent of expenses. “And of course, they earn more and have more space for savings,” he added.
“Fuel accounts for around 30 percent of transport and energy costs, on which the poor spend around 15 percent of their income. So, you’re looking at another 1.13 percent increase in those areas due to a 25-percent peso depreciation, which we are on track to reach year to date by the coming weeks,” Salceda said.
Year to date, the peso has already depreciated by 14.7 percent, he said, and citing from its 2021 strongest, the peso has already fallen by 24 percent.
High income households have the option to keep their money in dollars, while lower-income households barely have any savings, Salceda noted.
“The upper 10 percent of households has at least P322,000 in savings every year that they can keep in dollars. Foreign currency deposit units are tax free also, so they get appreciated value plus tax advantages by keeping their money in dollars,” he said.
“The poorest 10 percent of households is in debt by at least P3,000 every year. So, they have no upside from dollar appreciation, and all the downside of a weak currency,” the Albay solon added.
According to Salceda, the solution here “is a mix of policy and program interventions.”
“As I’ve suggested, we need to encourage our Big 4 in service dollar earners. BPOs (business process outsourcing firms), foreign-employed freelancers, OFWs (overseas Filipino workers), and the tourism sector. That will allow us to benefit from upside in the dollar,” he said.
“We should train as many people as we can to have the option of employment in these areas,” he added. “The coming Christmas season might also be a good time for some overseas Filipino workers to repatriate some of their dollars.”
The committee on ways and means, chaired by Salceda, is also studying removing documentary stamp taxes on lending of foreign companies to their wholly-owned Philippine subsidiaries.
“We also need some management or mitigation of the worst. There are some who believe that we should keep the interest rate differential between the US Fed rates and Philippine rates. We could take a bit of that,” he said.
He noted that a 2018 study by the Bangko Sentral ng Pilipinas found little evidence of monetary policy affecting bank lending. “So, higher interest rates by the BSP might not constrain our growth so much, especially if we take measures to protect our key growth drivers,” he added.
“That is a decision the BSP will ultimately have to weigh. But the impact of depreciation on the poor must be something the Monetary Board thinks about when they decide on this policy question,” he said.