Philippine economy in good hands – Manila Bulletin
A few days after President Ferdinand Marcos Jr. announced he was appointing then-Central Bank Governor Benjamin Diokno as the new finance secretary in the new administration, I had the good fortune to be invited by a group of business columnists to have an intimate conversation with the person who will lead the economics team for the next six years. We were doubly lucky because Secretary Diokno brought with him the new Budget Secretary, Amenah Pangandaman. Listening to these two important members of the economic team of the new administration convinced me that they had the right approach to maintain the growth momentum of at least 6 to 7% annual increase in GDP during of the next six years. They will be strongly complemented by the other key officials such as Governor Felipe Medalla and BIR Commissioner Lilia Guerrero with whom they have worked for years. These four very experienced civil servants will know how to manage the debt burden resulting from the huge borrowing during the pandemic which caused the debt-to-GDP ratio to rise from around 30% to a peak of 64%. I agree with Secretary Diokno that growth will solve the problem of returning this ratio to its original pre-pandemic level by 2028, the end of the Marcos Jr administration. I also agree with his a more sober view that 64% isn’t “really scary”. Countries like the United States, Japan and many members of the European Union have debt-to-GDP ratios of 100-200%.
We are off to a good start in 2022 as the World Bank has released its GDP growth forecast for the Indo-Pacific region. In this regional forecast, the Philippines is expected to overtake all ASEAN countries in terms of GDP growth and will be second only to India in the entire Indo-Pacific region which includes tiger economies like Taiwan, South Korea and Japan. An alternative regional forecast by the Asian Development Bank ranks the Philippines as the second fastest growing in 2022 and 2023 in ASEAN, next to Vietnam for both years. The two international banks have estimated our growth rates over these two years at 6-7%, with the AfDB stating that “the recovery continues amid global headwinds”.
Over the past four quarters, Philippine GDP has grown at robust rates of 12.2%, 7.0%, 7.8% and 8.3% in that chronological order. I share Secretary Diokno’s optimism that our GDP growth for all of 2022 will average at least 8%. He is more conservative in predicting a slight slowdown to 6-7% per year in 2023 and beyond. As a “boom prophet,” my fearless forecast is that we can sustain 8% annual growth for the remainder of President Ferdinand R. Marcos Jr.’s term. I base this optimistic scenario on my observations that we have the best economic team in Cabinet since 1986 and, as Secretary Diokno said in a Financial Times interview (June 21, 2022) with Southeast Asia correspondent John Reed, it is very unlikely that the BBM Chairman succumbs to cronyism and bad governance. I have followed with eagle eyes the appointments he made to his cabinet. Despite the many pressures from politicians who helped him win the election, he held his ground and ensured that only the most honest, competent and experienced technocrats would serve on his economic team. Among the businessmen he turns to for advice, I see only highly accomplished entrepreneurs who have built business conglomerates on their merits, unlike the cronies who received unfair favors from the last president. To quote a statement made by Secretary Diokno to John Reed of the Financial Times, “Marcos Jr. has put together a team that is not political and I see no trace of cronyism. I’m very confident that he wants to put together a team that will really solve many of our problems related to poverty, the economy and our debt problem. I can only say “Amen”.
It is providential that President Marcos Jr. takes charge of an economy that has recovered from the crisis caused by the pandemic. A good economic team will help sustain this recovery, producing an annual growth rate of at least 6-7% which will also allow the economy in the medium term to recover from the debt burden resulting from the same pandemic. What about the current global crisis which is leading to stagflation in many developed and emerging markets around the world? I maintain that based on our experiences of surviving the East Asian crisis in 1997 and the global economic recession from 2008 to 2012, our great domestic market of 112 million people, with enormous power purchasing through OFW remittances, BPO-IT revenue, and booming domestic tourism – the Philippine economy will be able to avoid stagflation. This means that despite the high inflation of 5% or more expected in the coming months, our GDP growth rate will continue to be one of the highest, not only in the Indo-Pacific region, but in the whole world. .
As a clue to which sectors of the economy we can count on to deliver growth of at least 6-7%, I have looked at the performance of various sectors as reflected in GDP growth rates per industry 2020-2021 at 2018 constant prices. published by the Philippine Statistical Society on its website. As we have seen earlier, the Philippine economy has rebounded strongly in 2021, with full year GDP growth of 5.7% despite the fact that in the first half of 2021, the pandemic still required strict confinements. It would be instructive to know which sector led the relatively strong rebound. As expected, human health and social work activities grew the fastest at 14.1%, followed by construction at 10.0%, manufacturing at 8.8%, information and communication at 9.2% to 8.3%, accommodation and food services at 7.3%, transport and warehousing at 7.2%, professional and commercial activities at 6.2% and public administration and defense at 5.7%.
It would also be useful to know the growth rates by expenditure item during the period 2020 -2021. The fastest annual growth was recorded by gross capital formation at 20.3%, imports of goods and services at 13.0%, exports of goods and services at 8.0% and final consumption expenditure general government at 7.1%. The laggard in below-average growth was household final consumption expenditure at 4.2%, as in the first three quarters of 2021 the pandemic was still raging at high levels. Given this data, I suggest that the government and the private sector do everything possible to continue to focus on health and well-being; infrastructure spending and real estate; manufacturing (in particular food and drink); the digital sector; investment in training, retraining, upskilling and retooling of workers, public education (realization of the budget of 6% of GDP), domestic tourism, logistics and professional and commercial services. Given the limited funds the government has for infrastructure, public works should focus on rural areas to provide the agricultural sector with what it needs for farmers to improve their productivity. Urban infrastructure (airports, seaports, tolls, airways, subways, railways, etc.) should continue to be financed by companies like San Miguel Corporation, First Metro Pacific, DMCI, Megawide, ICTS and other conglomerates . A great effort should be made to attract foreign investors from countries like Spain, South Korea, Japan, India, Taiwan, Germany and private companies in China to invest heavily in infrastructure that has been 100% open to foreign ownership through the amendment of the Public Services Act.
Another clue to achieving growth of at least 6-7% per year in the coming years is to look at which regions of the Philippines are driving the growth of 2021. As the national economy grew by 5.7%, some regions were growing much faster. These were CALABAZON at 7.6%, Cordillera Administrative Region (CAR) at 7.5%, Bangsa Moro Autonomous Region in Muslim Mindanao (BARMM Central Luzon at 7.5%, CARAGA at 7.2%, Northern Mindanao at 6.3%, Eastern Visayas at 6.0%, Western Visayas at 5.9%, Davao Region at 5.9% and the Zamboanga at 5.7% President Marcos Jr. and his economics team could focus on low-hanging fruit in these regions to sustain their growth at above-average rates by encouraging LGU leaders in these regions to market their communities more aggressively to domestic and foreign investors (especially foreign infrastructure companies like Acciona from Spain, GMR from India, and others who are already used to investing in the Philippines). pride in completing some of the infrastructure that was started under the Duterte administration of in these high-growth regions. I can think of one game-changing infrastructure in the Western Visayas: the bridge that connects Iloilo to Guimaras and eventually Bacolod. Another handy fruit is the rail system from Clark to Bulacan to Calamba which the Japanese are helping to build. And what about Metro Manila’s two metro systems?
I cannot stress enough that it will be gross capital formation or private sector and government investment that will provide growth of 6-7% or more. Private consumer spending and government consumer spending will be subdued due to high inflation and the debt burden. That’s why we agree with Secretary Diokno’s view that we should, as much as possible, not cut government infrastructure spending. This would imply that there should be no tax cuts under the new administration, especially fuel excise taxes. On the contrary, as Secretary of Economic Planning Arsenio Balicasan has already suggested, in the second or third year of President Marcos Jr.’s term, more taxes should be passed to increase the revenue needed for the program. Build, Build, Build, and necessary increases in health and education budgets. During the first year of the incoming administration, all efforts should be focused on improving tax collection under the CREATE Act. The fact that we have a BIR commissioner in the person of digitization expert Lilia Guerrero bodes well for improved tax collection. Digitization will reduce human intervention in tax collection and can minimize leakage due to corrupt practices at both the BIR and the Customs Office. These government efforts to prevent a sharp decline in infrastructure spending, coupled with a more aggressive campaign to attract FDI into our telecommunications, transport and other utilities sector, can increase our investment-to-GDP ratio to more than 30%, which is the norm. among our neighbors in East Asia. To be continued.
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