Despite the widening trade deficit due to a surge in capital goods imports to be used in the construction of big-ticket infrastructure, the country’s chief economist said Thursday that there would be no slowing down the “Build, Build, Build” program.
“We haven’t made a decision to slow down on the ‘Build, Build, Build.’ Even with the suspension of the [fuel] excise tax in 2019, we consider the ‘Build, Build, Build’ as a priority program. And so, as we said earlier, we are going to follow this hierarchy of essentiality. The least essential will be first cut, and the infrastructure program will be among the high-priority programs,” Socioeconomic Planning Secretary and National Economic and Development Authority (Neda) chief Ernesto M. Pernia told reporters Thursday.
Economic managers have said the ambitious infrastructure buildup would be sustained even as the government stands to lose P41 billion in tax revenues from the temporary suspension of the excise taxes slapped on oil products early next year due to elevated global prices of late.
“I think it’s even more important that we invest in infrastructure. The inflation rate’s coming from the supply side, so the more we build infrastructure to help improve productivity, improve the mobility between the regions so that food products can be delivered from the production areas to highly-developed areas where they’re needed, the more it will be better for our economy,” Neda Director Reynaldo C. Cancio, for his part, said.
Pernia had said he expects imports of capital goods as well as raw materials to remain high until next year partly due to the “Build, Build, Build” program.
Under “Build, Build, Build,” the government plans to rollout 75 “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside spending a total of over P8 trillion on hard and modern infrastructure until 2022 to usher in “the golden age of infrastructure.”
Last Wednesday, the government reported that imports jumped 26.1 percent year-on-year to $9.754 billion in September, while merchandise exports declined 2.6 percent year-on-year to $5.827 billion.
As such, the balance of trade in goods last September remained at a deficit of $3.927 billion, the biggest monthly trade deficit so far this year.
As of end-September, the year-to-date trade deficit stood at $29.91 billion.
The wider trade deficit was putting pressure on the current account, a component of the country’s balance of payments, making the market wary and pulling down the peso to 13-year lows.
As of end-June, the current account deficit ballooned to $3.1 billion—equivalent to 1.9 percent of gross domestic product, from $133 million or only 0.1 percent of GDP a year ago, mainly on the back of an also bigger trade-in-goods deficit.
In an economic forum last Tuesday, Maybank Kim Eng senior economist Chua Hak Bin said markets were “uncomfortable” with the Philippines’ high inflation, wider budget deficit, as well ballooning current account deficit.
For Chua, narrowing the current account deficit will help stabilize the peso.
Given that the trade deficit was hitting historical highs, the current account deficit was seen further expanding to 3.5-4 percent of GDP in the third quarter, Chua said.
While remittances from Filipinos living and working overseas drove the current account into surplus during the period 2003 to 2011, Chua said these dollar inflows were “no longer as powerful,” citing that remittances now account for less than 10 percent of GDP as well as were weighed down by troubles in the Middle East.
Asked by reporters what was a comfortable level of current account deficit, Chua replied that it should be about 3.5 percent of GDP.
To narrow the current account deficit and make the peso stable, Chua said the government could “contain the pace of the investment infrastructure.”
“‘Build, Build, Build’ has a lot of projects, but try to pace it down, spread it over a longer time so that imports of capital goods won’t spike up,” Chua added.
Asked how he thinks the “Build, Build, Build” program was moving, Chua replied: “I think it is probably going on somewhat a decent pace.”
“If it wasn’t constrained, probably you don’t have to prioritize, but sometimes with the pressures, you have to prioritize and see which ones can be delivered with the least capital, which one can deliver more foreign exchange proceeds in the future to pay off infrastructure. And clearly, things like airports can bring tourism, so it should be a priority,” he said. /muf