The economic managers remain hopeful the Philippines would continue to expand this year and the next five years at a rate ranging from 7 percent to 8 percent in terms of the gross domestic product (GDP), Budget Secretary Benjamin Diokno said in a statement sent from London on Wednesday.
This developed even as the Manila-based Asian Development Bank (ADB) recalibrated its growth projections for the $314 billion Southeast Asian economy and concluded that growth should not be as expansive this year as it was in the recent past.
According to Kelly Bird, ADB country director for the Philippines, local expansion measured as the gross domestic product was likely to slow down this year instead to 6.4 percent or significantly slower than its earlier forecast of 6.8 percent.
He also announced a recalibration of next year’s projected growth path for the Philippines seen averaging 6.9 percent in 2019 to only 6.7 percent.
At these rates, the Philippine growth story should still be among the most compelling stories in the region, right up there with some of the fastest-growing like China, for instance.
“Six point four is still a very robust growth rate,” he told financial reporters. “This is in line with the Philippine long-term growth and it is driven by investments,” Kelly added. The last remark has much to do with the government decision to help ramp up local output by an ambitious infrastructure buildup program costing trillions of pesos over a given time span.
As for next year’s projected growth path, Kelly said the GDP at 6.7 percent should also be investment-driven as more of the government’s so-called flagship projects come on stream.
In Malacañang, presidential spokesman Harry Roque issued a statement saying the government actually anticipated the slowdown in economic activities: “We expected this slowdown vis-à-vis our growth target for the year, given that certain policy decisions, such as the closure of Boracay and the full implementation of our comprehensive tax reform package which would benefit the country in the long-run, contributed to the deceleration.”
This pertains for the most part to revenue reforms carried under the Tax Reform for Acceleration and Inclusion or TRAIN Law that took effect on 1 January this year which scaled back the personal income tax but ramped up and widened the excise tax net.
The revenue reforms under TRAIN, however, have been blamed for helping push commodities prices past the roof in recent months as its ostensibly ill-timed excise measures, in tandem with supply restraints and inefficiencies, only succeeded in pushing inflation still higher in August to 6.4 percent.
“We assure the public that our macroeconomic fundamentals are resilient, strong and stable. Per ADB’s updated outlook, the Philippines’ growth remains the second highest in Southeast Asia,” Roque said.
Back at the ADB, Kelly said the multilateral lender continue to see cost-push factors that contribute to high-flying headline inflation, such as the elevated price of oil that the Philippines imports in vast quantities every month.
“We also know that many of the food prices also increased,” Kelly said.
He pointed out the Philippines has a “stagnant agriculture sector” and observed that in some areas of the country the production of the rice staple and other food sources declined
He said rising food demand and cost-push factors like significantly more expensive imported oil in combination with “restrictions on the import side” formed the perfect recipe for elevated headline inflation.
Still, he lauded the government, particularly the Bangko Sentral ng Pilipinas (BSP) for taking a very proactive stance on inflation.
“The central bank has lifted the policy rate by 100 basis points and that’s expected to slow down credit growth. It usually takes a few months before (its impact) starts to kick in,” Kelly said of the rate at which the BSP borrows from or lends to banks on short term basis.
A recalibration in the central bank’s policy rates triggers a commensurate adjustment in the loan rates of the various banks in the country, slowing or accelerating credit activities as the case may be.
The ADB favorably looks at the decision of the government economic cluster to remove the administrative restrictions on imports covering a particular range of commodities, especially on rice.
Kelly likewise heaped praise on the government decision to further ramp up farm-to-market infrastructure and warehousing facilities that boost the capacity of markets to silo or warehouse key commodities as well as plans to boost unconditional cash transfer program that enhances the ability of poor households to spend.
Back in London, Budget chief Diokno reiterated the country’s growth target this year “is consistent with projections of multilateral institutions and global think tanks. With higher public investments, we are confident our growth target is achievable. Government spending will remain sustainable and supportive of economic growth and development. With our sound, prudent and sustainable economic blueprint, we assure that the Philippines will continue to be a bright spot for UK investments.”
Diokno joined Finance Secretary Carlos Dominguez III, BSP Deputy Governor Diwa Guinigundo, Socioeconomic Planning Secretary Ernesto Pernia and Transportation Secretary Arthur Tugade at an investment roadshow in London seeking the support of policy and business people in the United Kingdom in the country’s bid to attract foreign participation in one of the fastest growing economies in Southeast Asia.
The agency heads addressed questions from the British business community, especially those in relation to the ease of doing business in the Philippines. It was noted President Duterte signed into law earlier this year the Ease of Doing Business Act.