By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINES risks losing part of its recent human development gains as the Middle East conflict weighs on the economy, with the impact expected to be more significant as the crisis continues, according to the United Nations Development Programme (UNDP).
In a policy brief, the UNDP said the country is among the hardest hit in the region, as it depends on the Middle East for most of its crude oil supply and is a net importer of food and fertilizer.
“The shock has reached households through three reinforcing channels: energy imports, agricultural inputs, and labor migration and remittances. These channels converge on the country’s development trajectory: The UNDP estimates that the immediate impact of the crisis could set back the Philippines’ human development progress by the equivalent of 0.01 to 0.05 years, with losses compounding the longer the disruption persists,” it said.
The policy brief titled “Socioeconomic Impact of the Middle East Conflict on the Philippines” was prepared by Mohamed Shahudh, country economist for UNDP Philippines.
Since the Iran war began on Feb. 28, the Philippines’ macroeconomic conditions have weakened, as seen in the spike in inflation due to soaring pump prices, the peso depreciation, and a slowdown in economic growth.
“UNDP estimates that more than 35,000 Filipinos could fall below the lower middle-income poverty line of $4.20 a day from the initial effects of the war, with this figure rising significantly under a prolonged conflict,” it said.
The UNDP said this could raise the country’s post-crisis poverty rate to 17% from 16.9%, leaving about 20.146 million Filipinos living in poverty.
The estimate assumes a 28-day disruption followed by an eight-month adjustment period. If the adjustment period is limited to four months, the UNDP projects 14,408 Filipinos to be pushed into poverty.
Among the most exposed groups are informal workers, public-transport drivers, farmers, households dependent on remittances, women in low-paid service and care work, and young workers.
“The setback would run through all three dimensions of the Human Development Index, which combines a country’s income, health and education outcomes into a single measure: income first, as inflation and slower growth erode real household incomes, and health and education more gradually, as households under pressure cut back on food, postpone medical care and, if the strain persists, withdraw children from school,” the UNDP said.
According to the policy brief, a prolonged Middle East conflict could sharply reduce household incomes by disrupting remittance flows that account for about 20% of the Philippines’ total remittances.
“The UNDP notes that while short-term shocks may be absorbed, prolonged disruptions to Gulf labor markets can rapidly translate into income shocks for migrant-dependent families, potentially impacting household food security and educational continuity,” it added.
FERTILIZER PRICES
The UNDP also noted that food security can be undermined as food prices rise due to higher costs of fuel, freight, and fertilizer.
“One of the most distinctive second-round price effects for the Philippines runs through fertilizer prices. The country is a net importer, and the nitrogen grades on which rice and corn depend are particularly exposed to a Middle East supply shock,” it said.
The UNDP said average granular urea prices rose by about 37% to P2,255 per 50-kilogram (/kg) bag in March-April from P1,650/kg bag in January-February.
“The burden of this price surge largely falls on the grades that rice and corn farmers use the most, making them the most vulnerable to a prolonged shock,” it added.
Rice-farming households derive about two-thirds of their income from agriculture, making them particularly vulnerable to higher input costs and supply-chain disruptions.
In March, President Ferdinand R. Marcos, Jr. placed the country under a one-year state of national energy emergency due to the impact of the Middle East conflict.
As part of its efforts, the Department of Agriculture set up a quick-response fund for fertilizer and subsidized rice programs.
“I think the government has responded well for the first round, with a really targeted, time-bound approach,” Mr. Shahudh told BusinessWorld.
“As the crisis progresses, a more comprehensive set of measures may be needed, particularly at the subnational level, starting in areas where fertilizer prices are increasing and where states of calamity have been declared,” Mr. Shahudh added.
As the next planting season looms, protecting access to affordable inputs should be the government’s time-sensitive priority “to prevent current financial pressures from translating into longer-term human development setbacks.”
PRIORITIES FOR THE GOV’T
The UNDP said the Philippine government should mitigate the impact of the crisis and ensure this temporary oil shock does not become a lasting setback for development.
“(It should) protect price stability for fuel and food staples through supply-side measures and careful sequencing of the relief measures that expire in mid-July, rather than broad price controls, helping to cushion the purchasing power of the households most exposed to price increases,” it said.
The government should also secure energy supplies through diversification of sources of refined products and accelerate the medium-to-longer term investment in renewable energy.
In the near term, however, it said that the government should require “higher buffer stocks for refined oil products and ensure inventory levels are monitored against safety minimums.”
The UNDP also urged the government to protect livelihoods by addressing rising fertilizer prices, supporting micro and small enterprises and informal workers, and strengthening support for returning overseas workers.
It also called for the expansion of targeted cash transfers, giving priority to high-exposure, low-development regions.
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