MANILA, Philippines — The Department of Economy, Planning, and Development (DEPDev) on Tuesday, March 24, outlined several scenarios in the Philippines if fuel prices remain on an uptrend, with the worst-case scenario predicting heightened inflation that could drive up unemployment and poverty incidence.
During an ad hoc Senate Committee hearing, DEPDev Secretary Arsenio Balisacan presented to lawmakers several scenarios that could happen in the Philippines if the war between Israel and Iran continues.
A worst-case scenario is if oil barrels reach $200 for an average of 180 days. Gas prices could surge as high as 146.85% by May if fuel remains high—this is assuming that there are zero government interventions.
Balisacan maintained that Scenario 5 is unlikely at this point, but acknowledged that the scenario is tricky and unpredictable.
In every scenario, Balisacan said that inflation is expected to breach the government’s target of 2% to 4%.
This is based solely on the assumption of oil prices. Balisacan said that the price of raw materials could also increase, further driving up inflation.
Here is the projected average inflation for each scenario:
Under Scenario 1, inflation could reach 4.2% by 2026. However, the worst-case scenario puts inflation as high as 8.6%.
“We could potentially return to the high inflation of last year, and that is what we need to prevent,” Balisacan said.
The DEPDev secretary said that inflation in the coming months would primarily be driven by the non-food sectors, since many industries rely on oil, including transportation and logistics.
Food inflation could range anywhere from 3.3% to 6.1% in 2026, depending on the scenario. Non-food inflation could fall anywhere from 4.4% to 10.0% in 2026.
A double-digit inflation rate has not been seen in years, said Balisacan. Should the inflation rate reach 10.0%, this would surpass even pandemic-driven inflation.
While food inflation is not projected to be as harsh as non-food, Balisacan said that fertilizers are at risk of increasing prices, which could affect costs.
Remittances from overseas Filipino workers, especially from the Middle East, could fall by P63.305 billion to P167.451 billion. Balisacan said that this may have a “substantial” impact on the economy. Higher inflation will mean lower purchasing power for households.
With faster inflation and lower remittances, the country’s gross domestic product (GDP) may also decline by 0.15 to 1.95 percentage points—leading to a GDP rate of 5.3% in Scenario 1, and as low as 3.5% in Scenario 5.
“For this year, before the crisis, we were targeting 5% to 6%, hoping that given all the hiccups that we had in the last two quarters last year and persisting somehow in the first quarter, we were still targeting to at least hit the lower end of the 5% to 6%. But with this crisis, that could likely dampen the expectations further,” Balisacan said.
With higher inflation and an impacted economy, there may be higher unemployment and poverty incidence.
Under Scenario 1, the unemployment rate could reach 4.80%. But a worst case-scenario could mean an unemployment rate of up to 5.84%.
The poverty incidence could also range from 11.95% to 12.55%.
However, Balisacan reiterated that there are government interventions that ensure that worse scenarios do not play out.
Short-term measures such as targeted subsidies and buffering price volatility are already being done, Balisacan said.
In the medium to long-term, the government must move to protect supply chains and fast-track the use of renewable energy and promote active mobility.
“I think that if we act properly, we can speed up our push for renewable energy, our push for more diversified energy sources, including possibly, nuclear energy,” Balisacan said.
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