Dec. 19 (Bloomberg) -- U.S. Secretary of State John Kerry pledged $25 million in additional aid to the Philippines as the mounting cost of reconstruction in typhoon-damaged areas threatens the Southeast Asian nation’s budget-deficit goal.
“This is devastation unlike any I’ve seen,” Kerry said yesterday on a visit to Tacloban, the city hardest hit by Super Typhoon Haiyan in the Visayas group of islands. The Philippine economic planning agency yesterday said it estimates the cost of reconstruction at 361 billion pesos ($8.2 billion).
Philippine President Benigno Aquino is seeking more aid from international donors to reduce the strain on public finances as officials estimate reconstruction may widen the budget deficit beyond a target of 2 percent of gross domestic product in the next two years. The government has said rebuilding will help boost an economy growing at the slowest pace in more than a year.
“Investors will welcome this more aggressive spending stance to quickly rebuild damaged areas and support growth,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “We see very mild pressure on bond yields to rise as long as the deficit-to-GDP ratio doesn’t exceed 4 percent.”
The Philippine Stock Exchange Index has fallen 7.4 percent since Haiyan struck on Nov. 8. Benchmark peso bond yields due July 2031 dropped 20 basis points yesterday to 4.8 percent, according to Tradition Financial Services, while the peso has fallen more than 7 percent this year against the U.S. dollar, heading for its biggest annual loss since 2008.
Haiyan damaged farms, towns and roads, and killed more than 6,000 people, according to the national disaster agency’s most recent report. Globe Telecom Inc., the country’s second-largest telecommunications company, yesterday said revenue growth this quarter may be damped as demand for services in provinces hit by the storm is likely to drop as subscribers cut spending.
Typhoon-affected areas account for about 17.4 percent of the nation’s gross domestic product, the government estimates. The damage from the typhoon may cut GDP growth by 0.3 percentage point in 2013 and 2014, the economic planning agency said yesterday.
The World Bank has offered almost $1 billion in aid, while the Asian Development Bank has pledged about $900 million in loans and grants. The U.S. has committed more than $86 million, and the European Union has promised 428 million euros ($590 million).
The U.S. will conduct a feasibility study to rebuild the damaged airport in Tacloban, Kerry said yesterday after a visit to a relief center, where dozens of survivors came to hear him speak. It will also support a microlending program and a public- private partnership with Coca-Cola Co. and Procter & Gamble Co. to aid more than 2,000 convenience stores, he said.
Public spending for reconstruction in 2013 through 2014 is seen at 125.1 billion pesos, the economic planning agency said. Total damage was initially estimated at 571.1 billion pesos.
“We are taking this chance not just to rebuild what was destroyed, but more importantly, to build back better,” Aquino said yesterday. Reconstruction may be finished by 2017, he said.
Gross domestic product rose 7 percent from a year earlier in the three months through September, compared with a 7.6 percent gain in the previous quarter. The government is keeping its expansion target of 6.5 percent to 7.5 percent in 2014, Economic Planning Secretary Arsenio Balisacan said this week.
The Philippines won its first investment-grade ranking from Moody’s Investors Service, Fitch Ratings and Standard & Poor’s this year as Aquino boosted revenue and narrowed the budget deficit from a record in 2010.
Bangko Sentral ng Pilipinas has held its benchmark interest rate at a record-low 3.5 percent since October 2012. A possible sale of benchmark-sized global bonds in 2014 is likely to receive good demand, Treasurer Rosalia de Leon said Dec. 12.
The government is sticking to a plan of keeping the budget deficit within 2 percent of GDP up to 2016, Budget Secretary Butch Abad said yesterday after meeting other economic managers.
“If the government enables communities in affected areas to rebuild their lives and increase output in the years to come, I don’t think a slight increase in the deficit will dent investor confidence.” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG.
--With assistance from Cecilia Yap and Clarissa Batino in Manila. Editors: Rina Chandran, Dick Schumacher