Side issues fail to dampen growth

“One of the pillars of the Duterte administration’s inclusive growth agenda is the Tax Reform for Acceleration and Inclusion.

The economy, the political noise notwithstanding, continues to expand under President Duterte.

Local output, or the gross domestic product (GDP), is climbing, government infrastructure buildup is ongoing, unemployment is down and the manufacturing sector contributes more to output growth, boosting employment in the process.

On the downside, inflation is biting the poorest sector because of external factors but the government is already addressing the issue through tax exemptions and cash incentives.

The World Bank estimated local output or the gross domestic product (GDP) grew 6.7 percent this year and remained one of the fastest growing economies in Asia.

While this was below the government’s target range of between seven and eight percent, the figure still shows a steady economy.

Birgit Hansl, World Bank Lead Economist for the Philippines, said the government’s “ability to carry out its investment spending agenda would determine if the country can achieve its growth target of 6.5-7.5 percent over the medium term.”

In the first quarter, the economy grew 6.8 percent, following a 6.5 percent expansion in the previous quarter.

Gross domestic capital formation also jumped by 12.5 percent from January to March, accelerating from an 8.3 percent growth in the fourth quarter of last year.

On a quarter-on-quarter seasonally adjusted basis, the economy expanded 1.5 percent, the same pace as in the fourth quarter of 2017 and below market projections of 1.8 percent.

One of the pillars of the Duterte administration’s inclusive growth agenda is the Tax Reform for Acceleration and Inclusion (TRAIN) which aims to give more money to the poor and tax the rich more.

Finance Assistant Secretary Paola Alvarez said the tax reform measure raised the incomes of Filipino consumers and more than made up for the moderate inflation the past several months. With more money on the pocket, consumers are spending more, resulting in an increase in domestic consumption.

“The good thing, though, is the higher revenues generated by the TRAIN has enabled the government to put in place various measures, such as personal income tax (PIT) cuts, unconditional cash transfers (UCT) and transport subsidies, which have put more money into the hands of consumers to more than cover for the slight increase in prices,” Alvarez said.

Also, small and medium entrepreneur (SME) is enjoying huge benefits from the ramped up value-added tax (VAT) threshold to P3 million from P1.9 million. The increase in VAT threshold effectively excluded from the tax net more for SME that previously paid the 12-percent VAT.

The administration’s ambitious P9 trillion “Build, Build, Build” (BBB) is seen to alter the Philippine economic landscape drastically. The massive infrastructure development of the country’s logistics backbone is expected to create more than one million jobs per year.

According to Finance Secretary Carlos Dominguez III, the amount of money allocated in the 75 high-impact flagship projects would attract investments and ultimately disperse growth to the countryside. He added that 35 of the projects have already passed the approval process.

In the first five months of 2018, the government increased its infrastructure spending by 42 percent over the same period last year to P281 billion. This was on top of private sector construction and public-sector projects financed through Public-Private Partnerships (PPP).

The buildup in the country’s infrastructure will “super boost” the economy and help the government reduce poverty incidence a third of the 2015 level of 21.6 percent to just 14 percent by 2022.

Public sector’s spending on infrastructure jumped 25 percent in the first three months of the year, while the private sector construction also increased to 7 percent. Data from the National Economic and Development Authority showed the government had maintained its spending targets for infrastructure.

The number of employed Filipinos rose in January 2018 at 94.7 percent compared to the 93.4 percent employment rate in the same month last year, data from the Philippine Statistics Agency. Under the government’s BBB program, some 1.1 million new jobs are expected to be created annually.

According to Socioeconomic Planning Secretary Ernesto M. Pernia, the ongoing infrastructure project could generate at least 820,000 jobs this year. He added that in 2017, the construction sector saw around 420,000 new jobs a 13.2 percent increase from the previous year’s figure.

The number of unemployed Filipinos slightly declined in April to 5.5 percent, or down 0.2 percentage points in the same period last year. The figure is expected to be 5.40 percent by the end of the second quarter. However, according to analyst expectations, the country’s unemployment rate would hit 5.40 over the next 12 months. By 2020, econometric models project the country’s unemployment rate at a more moderate rate of 5.2 percent.

Regions with highest employment rates were National Capital Region (NCR) (92.2 percent), Ilocos Region (93.3 percent), and CALABARZON (93.3 percent). The labor force participation rate (LFPR) in January 2018 was estimated at 62.2 percent given the population 15 years old and over of 70.9 million. The LFPR in January 2017 was 60.7 percent. The labor force population consists of the employed and the unemployed 15 years old and over.

Two major sovereign credit watchers recently gave the Philippines a major boost in economic confidence when they affirmed the country’s investment grade status with a positive outlook.

Fitch Ratings maintained its triple-B debt rating on the Philippines with a stable outlook while expressing confidence price pressures will drop to within government target level in the next 12 to 18 months.

“The Philippines’ sovereign ratings balance a favorable growth outlook, government debt levels that are below peer medians, a net external creditor position and policies geared towards maintaining macro stability against lower income per capita and weaker governance and business environment indicators compared with its rating category peers,” Fitch said.

Three days later, Moody’s joined in and released its Baa2 debt rating.

However, the two credit watchers cautioned against overheating that could worsen the government’s fiscal and debt metrics and an “erosion of the country’s external payments position.”

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