Despite the increase in commodity prices, the National Economic and Development Authority (Neda) and economists still believe the country’s high GDP growth is already trickling down to the poor.
The Neda and economists interviewed by the BusinessMirror said they do not see the country’s poverty incidence increasing this year and that the government’s poverty target of 14 percent by 2022 remains within reach.
The Philippine Statistics Authority (PSA) will conduct the Family Income and Expenditure Survey this year. The first round of the survey will be done in July, and the second will be done in January 2019.
“We don’t see an increase [in poverty rates] because there was an increase in incomes, and then there was also a top-up of the CCTs [conditional-cash transfers] beginning last year so that one would have taken care of the [poor’s] purchasing power,” Neda Undersecretary Rosemarie G. Edillon told the BusinessMirror.
Edillon added that apart from the higher CCTs given to the poorest families, some of the unconditional-cash transfer (UCT) for Filipinos affected by the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law, has already been distributed.
She said that around 4 million Filipinos, all of whom are CCT recipients, have each received the UCT worth P200. Another 6 million Filipinos will receive their UCTs soon.
The aim of the UCT is to augment the incomes of Filipinos belonging to the bottom 50 percent of the population. The computation of the transfer, Edillon said, was done using the impact of the TRAIN on incomes of the bottom 50 percent.
“With that in place, we’ll be able to make up for higher prices,” Edillon said. “Hopefully they have been positively affected by economic growth in which case you have mitigated the impact [on poverty].”
Economists, including Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang and Bank of the Philippine Islands Lead Economist Emilio S. Neri Jr., believe the increase in commodity prices will also not exacerbate poverty.
Ang said that while inflation is expected to peak between June and July this year, he agreed with Edillon that incomes did increase because of the transfers.
However, Ang noted that the true test of whether there will be poverty reduction in 2018 will be seen in the April round of the Labor Force Survey (LFS) which covers the entire first quarter. This data will be released in July.
Ang also said the recent spike in inflation was largely due to the government’s failure to “coordinate and communicate,” particularly on the rice supply issue. “It’s not the TRAIN but how the bureaucracy communicated the TRAIN and how they made sure there’s ample [rice] supply,” Ang said.
Neri said inflation will likely increase to around 5 percent by the third quarter of the year but the conversion of the quantitative restriction (QR) on rice into tariffs will help ease prices.
He added that the government’s efforts to increase and fast-track spending for infrastructure will help the country cut poverty incidence down to around 19 percent to 20 percent, from the 2015 estimate of 21.6 percent.
“The decline of the poverty rate from 25 percent to 20 percent means there has been poverty alleviation already from 2010 to 2016. However, it needs to decline faster and the infra push can accelerate it. Hopefully, the growth momentum will be strong enough to overcome headwinds, such as the surge in global oil prices and rising interest rates,” Neri said.
The government’s programs coupled with a weak peso will allow the Philippines to meet its poverty incidence target, according to University of Asia and the Pacific Associate Professor Victor Abola.
Abola said, however, that the 6.8-percent GDP growth recorded in the first quarter was “disappointing” because he had expected the expansion to reach 7 percent.
He agreed with the Neda’s view that inflation was the main culprit of the lower-than-expected GDP growth. Abola hikes in the prices of food, fuel and electrify rates are to blame for the spike in inflation.
“There was delay in distributing subsidies to the poorest 40 percent of households. Also, employers may have delayed the implementation of lower compensation
tax rates for individuals as BIR was late in issuing the IRR [implementing rules and regulation],” Abola said.
However, local experts admitted that the high inflation and low UCT extended to those who will be adversely affected by the TRAIN, will pose a greater challenge to the government’s effort to curb poverty.
University of the Philippines School of Statistics Dean Dennis S. Mapa estimated that the poorest 30 percent of the population bore the brunt of the increase in prices.
Mapa estimated that the bottom 30 percent may have seen inflation reach 4.5 percent in the first quarter alone. The highest inflation they felt was in March at 5.1 percent. April inflation was projected to be higher at 5.3 percent.
The top 5 commodities that contributed the most to the increase in prices are fish; cereals and cereal preparation, which includes rice; fruits and vegetables; tobacco; and fuel, light and water.
With these assumptions, Mapa said the UCTs extended to the poorest Filipinos of P200 a month was “insufficient.”
For a family of five, Mapa said the cash transfer they need to cope with higher prices caused by the implementation of TRAIN is around P284 to P473 a month, or P3,408 to P5,680 per year.
He also estimated that a family of six will need P341 to P568 per month, or P4,089 to P6,816 per year, while a family of seven will need P398 to P663 a month, or P4,771 to P7,952 a year.
“Estimate [of the impact on poverty] will be tricky. But high inflation among the poor families will create challenge in the poverty reduction efforts,” Mapa said.
Foundation for Economic Freedom President Calixto V. Chikiamco told the BusinessMirror that in order to tame inflation, the government must convert its rice QR into tariffs.
But recent developments, Chikiamco said, particularly higher oil prices, would be difficult to predict. This will complicate the plight of the poor since any increase in prices will have a significant impact on them.
“Inflation should moderate but the wild card is higher oil prices. The US pullout from the Iran deal could limit oil supply and cause prices to spike further,” Chikiamco said.
GDP data
Socioeconomic Planning Secretary Ernesto M. Pernia said inflation was the “spoiler” of the country’s economic performance in the first quarter of the year.
He said if it weren’t for high inflation, which averaged 3.83 percent using the 2012 rebased data, GDP growth during the period would have breached 7 percent.
“Just a small digression in case you are interested in a small secret—if not for inflation, real GDP growth would have been well within our growth rate targets of 7 percent to 8 percent,” Pernia said.
“So, inflation is the spoiler, that is why we really need to focus on inflation especially because it is the No. 1 concern expressed by Filipinos in surveys,” he added.
Despite this, Pernia said the Philippines remains as one of the “best performing economies” in the region, next only to Vietnam’s and China’s 7.4 percent GDP growth and higher than Indonesia’s 5.1 percent. He added that the country’s growth target remains within reach.
Data from the Philippine Statistics Authority (PSA) showed that the 6.8-percent GDP expansion recorded in the January-to-March period was faster than the previous year’s 6.5 percent.
The PSA said manufacturing, Other Services and Trade, were the main drives of growth.
Among the major economic sectors, industry recorded the fastest growth at 7.9 percent. This was followed by services, with a 7-percent expansion. Agriculture grew at a slower pace of 1.5 percent.
Net primary income rose to 4.3 percent during the quarter. Gross National Income (GNI) posted a growth of 6.4 percent, faster than the previous year’s 6.3 percent.
Malacañang on Thursday welcomed the “good news” that GDP grew faster in the first quarter.
“We are optimistic that our economic momentum would continue to be sustained with higher tax-revenue collection and bigger public spending in infrastructure,” Presidential Spokesman Harry L. Roque Jr. said.
Budget Secretary Benjamin E. Diokno also said in a statement that higher government spending allowed the country’s economy to perform well during the period.
“Moving forward, expect government spending to continue to boost our growth prospects given the staggering P3.767-trillion national budget for 2018,” Diokno said. “With the first-quarter numbers, I am confident that the 7-percent to 8-percent growth target is doable.”
Higher interest rates
The Monetary Board decided to increase the interest rate on its overnight reverse repurchase (RRP) facility, from the current 3 percent to 3.25 percent in its May 10
meeting. Adjustments were also made in the overnight lending and deposit facilities.
The Bangko Sentral ng Pilipinas (BSP) last made such a policy move to curb inflationary pressures in 2014, when inflation threatened to breach their target for the year. As recent inflation figures trend above the BSP’s annual forecast of 2 percent to 4 percent, analysts said it is already time for the BSP to “pull the trigger” once more.
The BSP also hiked its inflation forecast for 2019 to 3.4 percent, from 3 percent.
“Given these considerations, the Monetary Board believes that a timely increase in the BSP’s policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations,” BSP Governor Nestor A. Espenilla Jr. said following the meeting.
“The Monetary Board observed that strong domestic demand allows some scope for a measured adjustment in the policy rate without adversely affecting the country’s economic growth momentum,” Espenilla added.
He said the BSP would continue to “closely monitor” domestic developments, as well as the evolving global economic environment, including the potential impact of the ongoing normalization of monetary policy in some advanced economies.
Following the meeting, the International Monetary Fund (IMF) told the BusinessMirror that they were “pleased” with the BSP’s decision on Thursday.
Yang said he “welcomes the interest rate hike” and said the move was “appropriate.”
In terms of market response, ING Bank Manila economist Joey Cuyegkeng said local financial markets are likely to remain volatile in the coming days.
“The Central Bank did not disappoint and raised policy rates by 25 basis points and revised inflation forecast, but we’re unlikely to see another one before the fourth quarter. Expect the peso to remain volatile,” he said. “The BSP’s move should calm investors in the equity and bond side, signaling to them that inflation will likely come down now that the Central Bank is in a tightening bias,” he added.
With Bernadette D. Nicolas
Image credits: Nonoy Lacza