Press Releases

Salceda: Peso depreciation to hurt the poor more than the rich

September 25th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) warned that the weak performance of the Philippine peso relative to the US Dollar will affect lower-income households more than rich households.

“The bottom 30% of households in terms of income spend 58.2% of their total expenditures on food. And 24.9% of total food consumption in the country is imported. So, a peso depreciation of 25% increases their total spending by at least 3.64% 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.”

“The upper 70% only spend 39.5% of their income on food. So, the same depreciation will only hit them by 2.47% of expenses. And of course, they earn more and have more space for savings.”

“Fuel accounts for around 30% of transport and energy costs, on which the poor spend around 15% of their income. So, you’re looking at another 1.13% increase in those areas due to a 25% peso depreciation, which we are on track to reach year to date by the coming weeks.”

Year to date, the peso has already depreciated by 14.7%. However, from its 2021 strongest, the peso has already depreciated by 24%.

Salceda also adds that high income households have the option to keep their money in dollars, while lower-income households barely have any savings.

“The upper 10% 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.”

“The poorest 10% 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 solution here is a mix of policy and program interventions,” Salceda said.

“As I’ve suggested, we need to encourage our Big 4 in service dollar earners. BPOs, foreign-employed freelancers, OFWs, and the tourism sector. That will allow us to benefit from upside in the dollar. We should train as many people as we can to have the option of employment in these areas.”

“The coming Christmas season might also be a good time for some OFWs to repatriate some of their dollars.”

“The Committee on Ways and Means is also studying imposing no documentary stamp taxes on lending of foreign companies to their wholly-owned Philippine subsidiaries. That along with tax-free intercorporate dividends under the CREATE Law would help us arrest any large-scale capital flight in dollars.”

“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. A 2018 study by the BSP found that there is very 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.”

“That is a decision that the BSP will ultimately have to weigh. But the impact of depreciation on the poor has be something the Monetary Board thinks about when they decide on this policy question.”

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