"The world has taken notice of the remarkable improvements in the Philippines' economic fundamentals."
Carlos “Sonny” Dominguez, 71, is the head of President Duterte’s economic team. His idea of economic growth is 6 percent or higher per year, with record investment in infrastructure, to the tune of P8 trillion in five years, and tax reform to raise government revenues.
The economy, though, is suddenly in correction mode, reflecting serious bottlenecks. Current growth is below the original 7 percent target per year and hit 5.7 percent in first quarter 2019, after 28 consecutive quarters of 6 percent or higher rate.
Build, Build, Build is under Duterte’s 10-point reform agenda designed to make every Filipino middle class in five years, if not earlier.
Government infra spending will exceed a record high 5.2 percent of the Gross Domestic Product. The 5.2 percent is equivalent to atleast P1 trillion infra spending per year. In 2019, national government disbursements are to reach P3.774 trillion, 19.6 percent of GDP, and rising to P5.29 trillion (20.6 percent of GDP) in 2022, the end of Duterte’s presidency.
To finance the gargantuan spending, Dominguez convinced Congress to pass the controversial TRAIN Law. “TRAIN Law has been a great success,” proclaims the DOF chief.
“We broadened the tax base and returned about P111 billion—the equivalent of a 14th month pay—to the pockets of 99 percent of our wage workers. That reflected in a spike in consumer demand that helped boost the domestic economy.”
In its first year, TRAIN exceeded its target by 8 percent. More tax revenues mean less reliance on borrowings for the government.
Awash with TRAIN money, President Duterte made college education free for all; bought war materiel to defend the West Philippine Sea; promised (still to be fulfilled) to double the salaries of soldiers, policemen, and teachers; signed the Universal Health Care law; and increased cash doleouts to the poor to the tune of P80 billion a year.
Covering 4.4-million households, the conditional cash transfer program locally known as Pantawid Pamilyang Pilipino Program or 4Ps is a potent anti-poverty tool, says the World Bank. Households receive cash grants if children stay in school and get regular health checkups, have their growth monitored, and receive vaccines. Pregnant women must get pre-natal care, with their births attended to by professional health workers. Parents or guardians are required to participate in monthly community-based Family Development Sessions to learn about positive child discipline, disaster preparedness, and women’s rights.
With up to 75 percent of the population targeted, the 4Ps is the world’s fourth largest cash transfer program to the poor.
To address inflation, Duterte opened rice importation, long a government monopoly, to private companies. Rice tariffication is expected to temper the cost of imported rice (food is half of the consumer basket) and bring down inflation. The measure’s impact has been dramatic. The inflation rate, which rose to an 11-year high of 11 percent in third quarter 2018, has fallen to below 3 percent this year.
“Rice tariffication law was a politically difficult reform,” confides Dominguez, a former Agriculture secretary under President Corazon Aquino.
For 30 years, various administrations tried to do it, without success. “The liberalization of rice trading will make quality rice more affordable and accessible to Filipino families, lower the country’s inflation rate, and revolutionize our agriculture sector as well as help our farmers become more competitive and productive,” Dominguez explains.
The world has taken notice of the remarkable improvements in the Philippines’ economic fundamentals. Foreign direct investments hit $10 billion in 2017 and another $9 billion in 2018.
In early May, Standard & Poor’s Global upgraded the Philippines’ credit rating, from BBB (a rating it has enjoyed for the past five years), to BBB Plus, with a stable outlook, the best ever for Manila and means, Dominguez points out, “the Philippine government has further improved on its ability to pay back its long-term debt.”
Other benefits of a higher investment grade credit rating: It signals to international investors that the Philippines is now a more attractive investment destination; investors will require lower rates of interest and returns for Philippine bonds and stocks, making financing cheaper for us; the private sector can also more easily and affordably tap international sources of funding when they borrow from overseas sources.
The upgrade green-lights investors to move more money into the Philippines.
Sonny says more foreign direct investments means more jobs, increased productivity and higher incomes for our people. Foreign direct investments will help sustain the country’s rapid growth and make it more inclusive.
The bullish S&P report validates the soundness of the Duterte administration’s “Build, Build, Build” to address the infrastructure gap. Poor and inadequate infrastructure turns off investors and hampers real growth.
TRAIN Law has a part two, called TRABAHO bill (actually TRAIN 2) which will raise taxes on cigarets and liquor and remove or decelerate generous tax incentives being given to locators in the country’s more than 200 export zones. TRABAHO Bill is not expected to have smooth sailing as TRAIN 1.
The credit upgrade puts the Philippines above countries like Italy and Portugal, and just a notch below countries like Spain and Malaysia. Italy and Portugal rank below Manila with their debt burdens.
Still, the Philippines lags behind two-thirds of the world’s countries in terms of ease of doing business. Red tape remains rampant. So is crippling corruption.
There is too much red tape, despite laws to curb red tape (the Anti-Red Tape Law has been bogged down by red tape). Mayors have made mincemeat of the Ease of Doing Business Law with their own ease of doing business regulations—which means if you want to get your business permit, be willing to part away with your money.
As for Build, Build, Build, Sonny has yet to give his imprimatur to big ticket projects of the private sector like San Miguel’s $15-billion Bulacan Airport and urgent power plants. Meanwhile, Duterte has promised investors a 24/7 hotline to the palace.