‘PH economy investment-driven’

The country’s push for sustainable growth by investing in tools, equipment, capital stock and others that make long-haul expansion possible, significantly improved over the past two years.

According to the Department of Finance (DoF), so-called capital formation has ramped up from only 24.4 percent of local output or the gross domestic product (GDP) in 2016 to 27.4 percent of GDP in only the first six months this year.

Local output is measured as the gross domestic product and relates to the aggregate value of services and goods produced by an economy in a given year.

Finance Undersecretary Gil Beltran, also chief economist at the DoF, said the significant change in capital formation has strong implications on the generation of jobs for thousands of Filipinos every year and directly influences local output growth down the line.

Capital formation at the moment is conducted in such manner that the economy is clearly investment-led, or one in which its capacity expansion ensures future growth, according to the DoF.

“The Philippine economy has become more investment-led. As percent of GDP, capital formation, which is the most comprehensive form of investment, rose from 24.4 percent in 2016 to 27.4 percent in the first half of 2018. Capital formation is one of the foremost determinants of future growth, in addition to employment and factor productivity,” Beltran said.

According to Beltran, capital formation as tracked by the national income accounts released on regular basis by the Philippine Statistics Authority, showed real growth of 9.4 percent last year and 16.4 percent in the first six months this year.

Of the major components of investments, fixed capital which consists of construction and durable equipment, grew by 9.5 percent in 2017 and 14.8 percent in 2018, he quickly added.

Investment-led capital formation may also be betrayed by foreign direct investments or FDI and by so-called portfolio investments, more popularly known as “hot” or speculative money.

Both relate to the investments of foreign entities in the Philippines although one is preferred over the other by regulators such as the Bangko Sentral ng Pilipinas.

Beltran said FDI are the more important indicator because it measures the amount of investment through controlling ownership in a business by foreign investors, which implies more active participation and more commitment by the investor in business policies and management.