SOME analysts have raised doubts that the Philippines will be back on track next year and will sustain a 7-percent growth for next decade, supposedly driven by its $180-billion infrastructure program.
Budget Secretary Benjamin E. Diokno said in Indonesia last week that he expects sustained economic growth for at least 10 years, amid global uncertainties.
However, economists such as Calixto V. Chikiamco, president of the Foundation for Economic Freedom, said the 7-percent growth is “not sustainable” because a growing trade deficit and low agriculture productivity will limit growth, adding that he expects growth to be at most at 6.5 percent for this year and next year.
“Also, exports [are] too concentrated in electronics, making us vulnerable to the state of the global economy. Besides, with higher interest rates, the economy will surely slow down. Let’s be thankful if we reach 6.5 percent, but more likely lower,” Chikiamco told the BusinessMirror in a message.
Data from the Philippine Statistics Authority showed that the country’s trade deficit ballooned to $26 billion in the January-to-August period this year, a 64.7-percent increase from $15.79 billion in the same period in 2017.
Local economists have earlier said that increased imports of equipment and other capital goods are expected to further widen the Philippines’s trade deficit in the coming years or even beyond 2022 because of the government’s “Build, Build, Build” (BBB) program.
Under the government’s massive infrastructure program, 75 infrastructure projects are expected to be rolled out to usher in what the Duterte administration calls the “golden age of infrastructure.”
For this year, Diokno has already said that the Philippines will be missing its GDP growth target of 7 to 8 percent, noting that it is highly unlikely that GDP will grow by 7.7 percent in the second half of the year to meet the lower end of the target given that the economy grew 6.3 percent in the first half.
High inflation was also touted by the government as the spoiler of the country’s growth for the first half along with low agriculture output and environmental policies of the Duterte administration.
However, Diokno has also said that inflationary pressures will just be transitory and will taper off toward the end of the year and be back within the government’s target of 2 to 4 percent next year. Inflation surged to a nine-year high of 6.7 percent in September, bringing the year-to-date average already at 5 percent.
Rice import lib
Nonetheless, Chikiamco agreed with Diokno that inflation will likely go down next year, especially with the liberalization of rice importation.
“Rice in Vietnam is about P17 to P20 a kilo. Let’s import cheap rice and feed our people,” he said, adding that the country does not have the competitive advantage when it comes to rice.
“There are 2.5 million rice farmers versus 103 million rice consumers. Who will you favor? Use tariff revenue to directly assist them. Stop NFA [National Food Authority] subsidies which only goes to rice traders,” he added.
Meanwhile, Jose Enrique A. Africa, executive director of IBON Foundation, said it is “most unlikely” for the economy to achieve 7-percent growth for the next 10 years if the government does not change its economic policy thrust, including correcting its “exaggerated” expectations from the BBB program.
“The economy is vulnerable amid the increasingly unfavorable global economic situation and difficult times are ahead,” Africa said. “The soaring inflation since the start of the year marked our going into a period of rising interest rates and peso depreciation.
The signs are that we will just be going further into this.”
According to Africa, major sources of inflationary pressures also include the US Federal Reserve’s raising interest rates thrice this year with a few more to come—perhaps even starting as early as December, capital outflows putting a downward pressure on the peso, and the looming sanctions on Iran further pushing up oil prices which will affect the country’s trade deficit.
“These are happening amid a lackluster and actually increasingly unstable global economy. Not only are trade wars brewing among the world’s economic giants but financial flows are becoming more volatile. The huge accumulated global debt stock is a huge disruptive force in capital and currency markets,” he added.
Africa also pointed out that the government should be more circumspect in what to expect with BBB as it is at best a short-term Keynesian demand boost with limited long-term benefits disproportionate to its costs.
“The long-term gains are dubious because there are no signs that the BBB program is part of a larger national industrialization plan to diversify and upgrade the economy. Sustained and sustainable growth at levels of 7 percent or high are only possible with such industrialization,” he said.
For De La Salle University Economics Professor Maria Ella C. Oplas, however, the country can hit its growth target of 7 percent next year, especially because it is an election year.
“I think that might be hit next year but on the late first quarter or second quarter,” she told the BusinessMirror.
She also agreed with Diokno that 7-percent growth can be sustained in a decade on the back of the BBB program.
Still, Oplas noted that it is possible that an anti-investors policy on contractualization can also make the country miss its growth target.
“If they are dead serious most especially on anti-contractualization, that will badly hit the economy because it will discourage investors to come in. It will make our labor not competitive to other neighboring countries,” she added.
She also does not expect inflation to reach 7 percent in December and continue to go down in January.
“One, [it’s] normal that inflation goes down in January. Two, people expect higher inflation, hence, will keep lessening their spending,” she said.
Liberalization of rice importation can also help curb inflation, in theory.
However, she said the government must do something to help the farmers, such as incentivizing people to go to farming and bringing agriculture credit right at the doorsteps of the farmers.
“Make agriculture credit personalized. The government should really go down to the farmers,” she said.