THE peso’s record slide past P62 to the dollar may boost the peso value of export earnings, but manufacturers say the gain is being offset by the higher cost of imported materials, machinery and fuel needed to produce those exports.
The peso closed at P62.265 against the US dollar on August 28, the weakest level on record, after opening at P62.05 and touching an intraday low of P62.27, per the Bankers Association of the Philippines.
The Federation of Philippine Industries (FPI) said the weaker currency is adding to cost pressures across manufacturing, particularly because much of the country’s export production remains tied to imported inputs.
‘With the peso breaching P62 to $1, industry is navigating multilayered pressures,’ the group said in a statement on Friday.
Electronics, which account for more than 58 percent of Philippine exports, illustrate the problem, FPI Chairperson Elizabeth Lee said.
‘Every chip we ship depends on costly foreign inputs. At P62 to the dollar, any FX (foreign exchange) gain is erased by the inflated peso cost of semifinished parts. Exporters are left with volume, but no real windfall,’ Lee said.
The same exchange-rate pressure is affecting companies planning to expand or upgrade their production capacity.
Data from the Philippine Statistics Authority (PSA) showed that machinery and equipment accounted for 27.9 percent of imports in the first seven months, meaning a weaker peso also raises the peso cost of factory upgrades and other capital spending.
‘Firms face a stark choice-delay upgrades or borrow at higher cost. Yet industry remains committed to modernization, provided relief measures are in place,’ Lee said.
Fuel adds another layer to manufacturers’ costs. Mineral fuels, including crude oil, coke and coal, made up 19.4 percent of imports during the period, exposing businesses to both global energy prices and exchange-rate movements. ‘Unfortunately, we are a price taker here-but we can act to reduce inefficiencies at home,’ Lee said.
The exposure is reflected in the country’s widening trade gap. Government statistics data showed that imports reached $92.26 billion from January to July, compared with $54.92 billion in exports, resulting in a $37.34-billion trade deficit.
Both export and import values were the highest recorded for the period since the PSA’s trade series began in 1991.
The ‘winner’ does not take it all
THE weaker peso may be handing some businesses a win, but at P62 to the dollar, the broader business sector is also absorbing higher costs, according to the Management Association of the Philippines (MAP).
MAP President Donald Patrick Lim said exporters, business process outsourcing (BPO) firms, tourism businesses and dollar earners benefit from higher peso returns on foreign-currency revenues, while Overseas Filipino worker (OFW) remittances gain purchasing power. ‘But for a large part of the domestic economy, the other side of the equation is becoming more important,’ Lim told BusinessMirror in a message. More than 85 percent of imports consisted of raw materials and intermediate goods, capital equipment and mineral fuels, based on PSA data.
For Lee, this dependence could also push up consumer prices as businesses absorb higher landed costs. ‘With raw materials and energy as essential imports, the peso’s slide past P62 can fuel cost-push inflation. Rising input costs will cascade from wholesale eventually into retail prices, even as rate hikes attempt to slow demand,’ she said.
The Bangko Sentral ng Pilipinas (BSP), meanwhile, projected August inflation at 5.5 percent to 6.5 percent.
Lim said imported fuel, machinery, technology, raw materials and intermediate goods raise operating and replacement costs when the peso weakens, compounding pressure from already elevated inflation.
‘Businesses can absorb higher costs only for so long. Eventually, companies either have to raise prices, accept lower margins, find cheaper inputs, or postpone certain expenditures,’ Lim said. ‘For MSMEs with limited ability to hedge foreign-exchange exposure or negotiate better supplier terms, the pressure can be even greater,’ he added.
Needed adjustments
RATHER than relying solely on the exchange rate to absorb the shock, the government could reduce domestic costs that add to manufacturers’ expenses, the FPI said.
The group proposed easing nontariff barriers during periods of exchange-rate volatility, including faster clearance of manufacturing inputs and fewer administrative delays.
‘Expedited clearance for manufacturing inputs and removing administrative delays can reduce demurrage, storage, and port handling fees-directly offsetting foreign exchange landing cost increases,’ Lee said.
If the peso remains at around P62 or weakens further, MAP expects businesses to become more cautious in both pricing and investment decisions.
Companies may stagger price increases rather than make one large adjustment, intensify efforts to source locally, renegotiate contracts, and defer dollar-denominated equipment purchases or expansion plans where possible. Businesses with significant foreign-currency obligations will also have to pay much closer attention to their balance sheets and currency exposure.
From MAP’s perspective, what businesses need most is not necessarily a particular peso-dollar level but stability and predictability.
‘Companies can plan around P60, P61 or even P62 if movements are orderly and economic policy remains credible,’ Lim told this newspaper. ‘What is much more damaging is rapid and sustained depreciation because it makes costing, pricing, investment and financial planning much more difficult,’ he added.
Lim also pointed to a longer-term structural challenge: strengthening domestic production and reducing unnecessary dependence on imported inputs, particularly in energy, food and other strategic sectors.
‘A competitive economy cannot permanently rely on a favorable exchange rate. Our objective should be stronger productivity, deeper domestic supply chains and businesses that can compete regardless of where the peso trades,’ he explained.