Page last updated at 04:01 UTC, Tuesday, 09 August 2022 PH
A few days after President Ferdinand Marcos Jr. announced that he was appointing then Central Bank Governor Benjamin Diokno as the new Secretary of Finance in the incoming Administration, I was fortunate enough to be invited by a group of writers of columns for the Business World to have an intimate chat with the person who will head the economic team for the next six years. We were doubly fortunate because Secretary Diokno brought along with him the new Secretary of the Budget, Amenah Pangandaman. Listening to these two important members of the economic team of the new Administration convinced me that they have the right approach on how to keep the growth momentum of at least 6 to 7% annual GDP increase in 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 been working for years. These four very experienced officials will know how to manage the debt burden that resulted from the huge borrowings during the pandemic that brought the debt-to-GDP ratio from about 30 % to a high of 64%. I agree with Secretary Diokno that growth will solve the problem of bringing down that ratio back to its original level before the pandemic by 2028, the end of the Marcos Jr. Administration. I also agree with his more sober view that 64% is not “really scary”. Countries like the U.S., Japan and a good number of members of the European Union have debt-to-GDP ratios of 100 to 200%.
We are starting with the right foot in 2022 as the World Bank came out with their forecasts of GDP growth for the Indo-Pacific region. In this regional forecast, the Philippines is expected to surpass all the ASEAN countries in 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 of the Asian Development Bank ranks the Philippines as the second fastest growing in both 2022 and 2023 in the ASEAN, next to Vietnam in both years. Both international banks put our growth rates during these two years at 6 to 7%, with ADB stating that “recovery continues amid global headwinds.”
During the last four quarters, the Philippine GDP has been growing at robust rates of 12.2%, 7.0%, 7.8% and 8.3% in that chronological order. I share the optimism of Secretary Diokno that our GDP growth for the whole of 2022 will average at least 8%. He is more conservative in predicting a slight slow-down to 6 to 7% annually in 2023 and beyond. As a “prophet of boom”, my fearless forecast is that we can sustain an 8% annual growth for the rest of the term of President Ferdinand R. Marcos Jr. I base this optimistic scenario on my observations that we have the best economic team in the Cabinet since 1986 and, as Secretary Diokno said in an interview with the Financial Times (June 21, 2022) with South-East Asia correspondent John Reed, there is very little likelihood that President BBM will succumb to cronyism and poor governance. I have watched with eagle eyes the appointments he has made to his Cabinet. Despite the many pressures from politicians who helped him win the elections, he has stuck to his guns and has made sure that only the most honest, competent and experienced technocrats would be in his economic team. Among the business people he turns to for advice, I can only see very accomplished entrepreneurs who 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 Financial Times, “Marcos Jr. has put in place a team that is not political and I don’t see any hint of cronyism. I am very confident that he wants to put up a team that will really solve many of our problems involving poverty, involving the economy and involving our debt problem.” I can only say “Amen.”
It is providential that President Marcos Jr. will be taking over an economy that has recovered from the crisis brought about by the pandemic. A good economic team will make it possible to sustain this recovery, producing at least a 6 to 7% annual growth rate that will also enable the economy in the medium term to recover from the debt burden that resulted from the same pandemic. What about the ongoing global crisis that is leading to stagflation of many developed and emerging markets all over the world? I maintain that from our experiences surviving the East Asian crisis in 1997 and the global economic recession in 2008 to 2012, our large domestic market of 112 million people—equipped with huge purchasing power from the remittances of OFWs, the earnings of the BPO-IT, and a 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 on which we can depend to deliver the growth of at least 6 to 7%, I have examined the performances of various sectors as reflected in the GDP by industry growth rates 2020 -2021 at constant 2018 prices published by the Philippine Statistical Society in its website. As we saw earlier, the Philippine economy recovered strongly in 2021, with GDP growing for the whole year at 5.7 % despite the fact that during the first semester of 2021, the pandemic still necessitated strict lockdowns. It would be enlightening to know which sector led the relatively strong rebound. Predictably, human health and social work activities grew the most rapidly at 14.1 %, followed by construction at 10.0 %, manufacturing at 8.8 %, information and communication at 9.2on at 8.3%, accommodation and food services at 7.3 %, transport and storage at 7.2%, professional and business activities at 6.2% and public administration and defense at 5.7%.
It would also be helpful to find out the growth rates by expenditure item during the 2020 -2021 period. The most rapid annual growth was registered by gross capital formation at a whopping 20.3%, imports of goods and services at 13.0%, exports of goods and services at 8.0 % and government final consumption expenditure at 7.1%. The laggard at below-average growth was household final consumption expenditure at 4.2% since during the first three quarters of 2021, the pandemic was still raging at high levels. Given these data, I suggest that the Government and the private sector should do everything possible to continue focusing on health and wellness; infrastructure spending and real estate; manufacturing (especially food and beverage); the digital sector; investment in the training, reskilling, upskilling and retooling of workers, public education (achieving the budget of 6% of GDP), domestic tourism, logistics and professional and business services. Given the limited funds available to the Government for infrastructure, the focus of public works should be in the rural areas to provide the agricultural sector with what it needs for the farmers to improve their productivity. Urban infrastructures (airports, seaports, tollways, skyways, subways, railways, etc) should continue to be funded by the likes of San Miguel Corporation, First Metro Pacific, DMCI, Megawide, ICTS, and other conglomerates. A big push should given to attracting foreign investors from countries like Spain, South Korea, Japan, India, Taiwan, Germany and private enterprises in China to invest heavily in those infrastructures that have been opened to 100% foreign ownership through the amendment of the Public Service Act.
Another clue to how to get a growth of at least 6 to 7% annually in the coming years is to examine in what Philippine regions the growth of 2021 came from. While the national economy was growing at 5.7%, there were certain regions that grew 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 Zamboanga Peninsula at 5.7%. President Marcos Jr. and his economic team could focus on low-hanging fruits in these regions to keep their growth at above-average rates by encouraging the LGU heads in these regions to market their communities more aggressively to both domestic and foreign investors (especially to foreign infrastructure companies like Acciona from Spain, GMR from India and others who are already familiar with investing in the Philippines). The Department of Public Works and Highways could also make a special point in completing some of the infrastructures that were started during the Duterte Administration in these high-growing regions. I can think of one game-changing infrastructure in Western Visayas: the bridge that connects Iloilo to Guimaras and eventually to Bacolod. Another low-hanging fruit is the railway system from Clark to Bulacan to Calamba that the Japanese are helping to construct. And what about the two subway systems in the Metro Manila area?
I cannot overemphasize the fact that it will be Gross Capital Formation or investments of both the private sector and the government that will deliver the growth of 6 to 7% or more. Private consumption expenditure and government consumption expenditure will be muted because of high inflation and the debt burden. That is why we agree with the view of Secretary Diokno that we should, as much as possible, not cut down on infrastructure spending of the Government. This would imply that there should be no tax cuts under the new Administration, especially the excise taxes on fuel. On the contrary, as Secretary of Economic Planning Arsenio Balicasan already suggested, in the second or third year of the term of President Marcos Jr., more taxes should be passed to raise the needed revenues for the Build, Build, Build, program and needed increases in the budgets for health and education. During the first year of the incoming Administration, all efforts should be focused on improving the collection of taxes under the CREATE law. Our having a BIR Commissioner in Lilia Guerrero, an expert on digitalization, augurs well for improved tax collections. Digitalization will reduce human intervention in tax collection and can minimize the leakages through corrupt practices both in BIR and the Bureau of Customs. These efforts of the Government to prevent a big drop in infrastructure spending, coupled with a more aggressive campaign to attract FDIs into our telecom, transport and other public services sector can increase our investment to GDP ratio to more than 30%, which is the norm among our East Asian neighbors. To be continued.