“Peso depreciation, wider trade gap and temporarily elevated inflation are signs of a continuously strong domestic economy that benefit the country in general.”
A majority of Filipinos now reap the benefits of the sweeping economic reforms introduced by the Duterte administration over the past few years, Finance undersecretary Karl Kendrick Chua said yesterday.
This as Finance Secretary Carlos Dominguez III credited the government’s “twin pillars” for economic inclusion – the comprehensive tax reform program and massive “Build, Build, Build” infrastructure program — that will “produce an economic revolution” and raise the per-capita income to the level of high- and middle-income economies by 2022.
Chua said the economic team has lowered the poverty incidence and hunger levels, created more jobs and livelihood opportunities, with the Philippine economy among the fastest-growing in the world.
“This government has accomplished important economic reforms that previous administrations lack. In just two years, it passed a landmark tax reform. It passed a national ID law to help improve financial inclusion and social protection. It passed the ease of doing business (EODB) law,” Chua said.
He added the Duterte leadership has since initiated a “careful balancing” of short-term benefits for the people with long-term public welfare, and allocating resources to benefit the greater number of Filipinos.
The infusion of P33 billion per month in the form of additional spending power for Filipinos due to sizable cuts in personal income tax (PIT) rates under the Tax Reform for Acceleration and Inclusion Act (TRAIN) only temporarily pushed inflation higher, but in a “good and productive” way, Chua said.
Data released by the Philippine Statistics Authority (PSA) showed the inflation rate exceeding government’s projection at 5.2 percent in June, faster than the 4.6 percent rates in May due to rising food price pressure.
“It was primarily brought about by higher annual rate posted in the heavily-weighted food and non-alcoholic beverages index at 6.1 percent,” the PSA explained.
Data showed that food prices jumped 5.8 percent last month from higher prices of corn with inflation rate of 14.1 percent; vegetables, 8.6 percent; meat, five percent; and rice, 4.7 percent.
Other contributors to higher inflation in June were alcoholic beverages and tobacco which rose 20.8 percent; transport, up 7.1 percent; and housing, water, electricity, gas, and other fuels, up 4.6 percent.
The headline inflation surpassed the Bangko Sentral ng Pilipinas’ (BSP) projection ranging from 4.3 percent to 5.1 percent and the Department of Finance forecast rate of only 4.9 percent.
Weak peso spells higher income
Chua said the peso depreciation, wider trade gap and temporarily elevated inflation are signs of a continuously strong domestic economy that benefits the country in general.
He argued the Philippines is a net beneficiary of the weaker peso as this spells higher incomes for over 10 million overseas Filipino workers (OFW) who send money to an estimated 22 million households back home as well as from the business process outsourcing (BPO) receipts and from exports that are among the country’s leading sources of jobs, he said.
“In fact, the BPO and export sectors have clamored in the past for some manipulation of the peso to make it weaker and more competitive,” Chua said. “When put in this context, then some will realize that it is not rich investors that we are serving, who make money from a stronger peso, but the vast majority of working class Filipinos who stand to benefit from a more competitive exchange rate as more jobs and opportunities come to them.”
He said the moderate current account deficit means the country is investing more, which also means the government is finally addressing years of underinvestment that has hobbled the country’s quest for inclusive growth despite the investment rating upgrades in the past that have transformed the Philippines into one of Asia’s economic stars.
Breathtaking and irreversible
Speaking at the Rotary Club of Manila’s celebration of its Centennial Year, Dominguez said the combined effect of the reform initiatives would be both “breathtaking and irreversible.
President Duterte’s goal of bringing down the poverty incidence by a third from the 2015 level of 21.6 percent to 14 percent could be achieved by the end of his term,” Dominguez said.
“This will be a dramatic achievement. It will be a sea change. As soon as we are able to reduce poverty to that level, the task of completely liberating our people from misery becomes a lot easier. We intend to take a giant stride in that direction during our watch. That will be the most important benchmark of our success or failure,” he added.
The tax reforms and the ambitious infrastructure program will produce a revolution in the country’s economic development, the finance chief said.