The economy: ‘So far, so good’
Editor’s Note: Starting June 25, the Inquirer will run on its print, online, and social media platforms a series of stories, reports and commentaries on the socioeconomic impact – positive and negative – that President Duterte has made in his first year in office. The articles will focus on how the former Davao City mayor has coped with the challenges of the presidency in five major areas that Filipinos consider most important in their lives: peace and order, traffic, economy, governance and foreign policy. This evaluation of the administration’s achievements and shortcomings will take into account what Mr. Duterte had promised to do during last year’s presidential campaign, his June 30 inaugural speech and his July 25 State of the Nation Address.
(First of a series)
For the country’s chief economist, it’s so far, so good for the Duterte administration in terms of sustaining the stellar economic performance it inherited from its predecessors.
“The administration has been business- investor- and market-friendly, thereby helping sustain economic growth, attracting investments, and lifting confidence in rolling out projects,” Socioeconomic Planning Secretary Ernesto M. Pernia told the Inquirer.
The economy grew 6.4 percent in the first quarter, lower than expected, but still among the fastest gross domestic product (GDP) expansion among emerging Asian economies. The Philippines enjoyed 73 straight quarters of GDP growth, the central bank said.
The government is targeting 6.5-7.5 percent economic growth this year, and 7-8 percent from 2018 to 2022.
Multilateral lenders had bullish outlooks for the Philippines under President Duterte’s watch—the Washington-based World Bank expects GDP this year to grow by 6.9 percent, the International Monetary Fund sees 6.8 percent, and the Manila-based Asian Development Bank’s forecast was 6.4 percent, although below the government’s target range.
“Political noise had little, if any, effect as both domestic and global attention was more taken by the Philippines’ economic performance,” Pernia said. He was alluding to the President’s often controversial rhetoric against his political opponents who question his war on illegal drugs and questions about the ongoing war in Marawi City.
Mr. Duterte’s economic managers moved fast to ensure that the previous government’s gains would not be lost as the new government buckled down to achieve his campaign promises.
In September, the Department of Finance (DOF) submitted for Congress’ consideration the first of up to five packages of the comprehensive tax reform package, aimed at easing the burden on personal income earners by bringing down tax rates while raising taxes on consumption.
The initial plan was to implement the measure as early as 2017, documents obtained by the Inquirer last year showed, but the House of Representatives only officially filed the measure early this year.
The Lower House passed the first package under House Bill No. 5636 before Congress adjourned in May, but the finance department admitted that it was watered-down version that cut revenue gains. It warned that the move could lead to downgrade of the country’s investment grade status.
The Philippines currently enjoys investment grade credit ratings from the top debt watchers Fitch Ratings, Moody’s Investors Service and Standard & Poor’s, among others.
Credit ratings are a measure of a government’s creditworthiness. As the stability of state finances is also related to a country’s performance, credit scores serve as a proxy grade for the economy.
Also, improved ratings would allow the government to demand lower rates when it borrows from lenders, which could translate to lower interest rates for consumers and businesses borrowing from banks using government-issued debt paper as benchmarks for their loans.
Given the slow pace of tax reform in Congress, the Cabinet-level Development Budget Coordination Committee lowered the proposed national budget for 2018 to P3.767 trillion budget from the earlier estimate of P3.84 trillion.
The DOF was nonetheless optimistic that the first package would be passed by the Senate later this year when Congress resumes, and signed by the President as soon as possible for implementation early next year.
For the part of the state planning agency National Economic and Development Authority (Neda), it was instrumental in the President’s order to adopt the AmBisyon Natin 2040, which aims to triple Filipinos’ per capita income to $11,000 in a quarter of a century. It hopes to achieve this by sustaining at least a 6.5-percent annual GDP growth clip alongside the implementation of policies that would make the Philippines a high-income country by 2040.
A survey conducted early last year showed that majority of Filipinos aspire for a “simple and comfortable life,” which Neda said reflected a middle-class lifestyle—earning enough, educating all children until college, owning a car, owning a medium-sized house, finding time to relax with family and friends, owning a business, and being able to travel around the country.
Last October, President Duterte signed Executive Order (EO) No. 5, which adopted the AmBisyon Natin 2040 as the long-term vision for the Philippines. The utopian vision aims to transform the country into a “prosperous, predominantly middle-class society where no one is poor.”
The President also signed EO 27 on June 1, mandating the implementation of the Neda-led Philippine Development Plan (PDP) as well as the Public Investment Program (PIP) for 2017-2022.
The PDP 2017-2022 targets 7-8 percent GDP growth in the medium term by pursuing the Duterte administration’s 10-point socioeconomic agenda ultimately aimed at reducing the poverty incidence to 14 percent by 2022 from 21.6 percent in 2015.
As for job creation, the plans aim to reduce unemployment to as low as 3-5 percent by 2022 from 5.5 percent last year.
The 2017-2022 investment plan, targets an investment of P7.125-trillion into the government’s “build, build, build” infrastructure plan.
The agency had increased to 75 from 55 the number of so-called flagship, “game-changing” projects that the administration aims to start and complete before 2022.
A total of at least P8 trillion will be spent by the Duterte administration in the next six years to build vital infrastructure such that infrastructure spending was expected to rise from P847.2 billion or 5.3 percent of the gross domestic product this year to P1.84 trillion or 7.3 percent of GDP in 2022.
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