The growth outlook for the Philippines in the near term remained “strong” on the back of “stable” economic, fiscal and monetary policies, “favorable” demographics, the ambitious infrastructure program, as well as comprehensive tax reform, debt watcher S&P Global Ratings said Tuesday.
“Growth-wise, the Philippines in the past two years has actually been stellar. In terms of the outlook for the next two years, we think that 6.5 percent and above as a pace of growth is actually very easily achievable,” S&P Asia-Pacific economist Vincent Conti said in a webcast.
The government nonetheless targets a faster 7 to 8 percent growth yearly in the medium term after the economy expanded by 6.7 percent last year, among the highest gross domestic product growth rates in the region.
Conti attributed S&P’s rosy forecast to “the very favorable demographic trends that continue to benefit the Philippines, particularly through providing a very mobile and effective labor force that has generated a lot of investments and consumption onshore.”
Also, “from the economic side of policy, it seems to be very stable and tends to have a lot of continuity across administrations,” Conti said.
“We’re talking about the fiscal side and the monetary policy side… So a lot of positives from the economic policy as well,” he added.
Conti also noted of the gains to be made under the Duterte administration’s massive “Build, Build, Build” program.
“The ramping up of the infrastructure program is one of the relatively newer additions to the policy toolkit,” he said. “And that’s actually a positive, in that it can generate even further potential growth farther into the future.”
Under “Build, Build, Build,” the government plans to rollout 75 “game-changing” flagship projects alongside spending a total of over P8 trillion on hard and modern infrastructure until 2022 to usher in the “golden age of infrastructure.”
“So overall, the growth outlook in the Philippines is pretty strong,” Conti said.
“We are quite upbeat about the policy environment in the Philippines,” said Kim Eng Tan, S&P senior director for sovereign and international finance ratings for Asia-Pacific. “One reason why the outlook for the economy is so strong is because of the confidence that direct investors have in the policy framework.”
“For the first time in quite a number of years, some degree of tax reforms are being carried out in the Philippines, and this is expected to go on over the remaining years of the administration,” Tan added, referring to the comprehensive tax reform program, composed of up to six packages.
The first package on personal income taxation or the Tax Reform for Acceleration and Inclusion (TRAIN) Act was signed into law by President Rodrigo Duterte last December.
Since Jan. 1 this year, the TRAIN Law (Republic Act No. 10963) has jacked up or slapped new excise taxes on cigarettes, sugary drinks, oil products and vehicles, among other goods, to compensate for the restructured personal income tax regime that raised the tax-exempt cap to an annual salary of P250,000.
Tax reforms “would, to some extent, stabilize the government’s revenues and hopefully provide more funds for infrastructure,” Tan said.
“The key things we are looking at in tax reforms is that the government actually has the ability to carry this out,” he added. “And I think to the extent that this shows greater proactiveness on the part of the policymakers and improvements in the government’s support for sovereign ratings. This is one of the reasons why we now have a ‘positive’ outlook on the Philippines’ credit rating.”
In April, S&P raised its credit rating outlook for the Philippines to “positive,” citing improved fiscal management following the passage of the first tax reform package.
From “stable” previously, a “positive” credit outlook meant that the Philippines’ long-term sovereign credit ratings, affirmed at “BBB,” could be raised over the next six months to two years. /atm