The regression of the Philippine economy has been steep, as 2022 saw the currency weaken by 9.3%, with an all-time low in October at PHP 59 to USD 1. This circumstance has placed the Philippines in a difficult situation, projecting uncertainty with the economics of day-to-day spending and long-term investments.
Forecasts and studies show that the weakened Peso is due to multiple factors in both local and global respects. Firstly, the Philippines is still recovering from the COVID-19 pandemic and has not been able to resume pre-pandemic productivity rates as quickly as other neighboring ASEAN countries. Moreover, there is a dependency on importing products rather than exporting, with the Philippine Statistics Authority (PSA) reporting that the country's trade deficit widened by 38 percent to US58.3 billion in 2022 from USD 42.2 billion in 2021.
For 2023, the outcome of further weakening is likely, with analysts from Standard Chartered Bank predicting a 2.2 percent depreciation. This prediction has materialized with evidence of inflation over the first quarter of the year, with rates of 8.6 percent in February 2023 and 8.7 percent in January 2023. The aftermath of inflation and an unfavorable exchange rate has made it difficult for the purchasing power of local Filipinos, as prices across various services and commodities have increased.
Effects of a Weakening Peso on Investments of Domestic Citizens
As established, a weakening Philippine Peso does lead to higher inflation. Therefore, the value of investments has the potential to decrease over time, as its currency projects itself to be lesser than other global competitors. Inflation would avert domestic Filipinos from investing in stocks, bonds, or other financial instruments, as these fast-increasing changes likewise weaken the investors purchasing power. Instead, investors would look at assets that are less affected by currency fluctuations, such as real estate or commodities.
In order to gain an advantage in the devaluation of local currency, Filipinos are to look toward export competitiveness to increase revenues from international customers. A weakened Peso provides an opportunity for foreigners to invest or purchase Philippine products, as their currency sees local products as cheaper compared to other alternatives. This can potentially improve the competitiveness of Philippine exports (in comparison to other countries) and boost the demand for commodities, leading to higher profits for export-oriented businesses. This likewise makes the Philippines a desired tourist destination for foreign visitors, as the country would have more affordable goods and services.
Effects of a Weakening Peso on Investments of Overseas Filipino Workers (OFWs)
Though the depreciation of the Peso has posed problems within the country, the value of overseas remittances sent by OFWs has grown significantly. As per the BSP, 2022 saw a record high 3.6 percent increase of USD 36.14 billion in personal remittances versus the previous record of USD 34.88 billion set in 2021. It accounted for 8.9 percent of the Philippines' gross domestic product (GDP), contributing significantly towards the regression of this country's economy. OFWs will find that their salaries and contributions are worth more when the Peso is weak, allowing for additional allocation of money to the domestic household.
However, the trend of this inflow must be monitored, as the BSP announced that January 2023's cash remittances were 3.5 percent lower than that of December 2022. Reports indicate that the influx increases around the ber months in anticipation of the holiday season. Nevertheless, OFWs are encouraged by local government to continue their remittances to cope with the local inflation and bring the country's GDP back to pre-pandemic normalcy.
These remittances aid the local Filipinos to afford the cost of living and increase purchasing power, especially given the effects of inflation across all purchasing aspects. China Bank chief economist Domini Velasquez remarks that "host countries also experienced better-than-expected economic conditions," which allows the OFW to send home cash and aid to further their local investments.
Future Outlook on the Philippine Peso
In time, the Philippine Peso may regain competitiveness against other countries, therefore boosting domestic activities. However, headwinds are still to be anticipated with the concern of strengthening the Peso and purchasing power of Filipinos. This may hinder domestic investments, as the concern for day-to-day purchasing of commodities pose as more important to address. Therefore, the advantages of export products and OFW remittances must be utilized to regain momentum towards a better economic outlook for the Philippines.