DESPITE a decade of posting above 6-percent growth, the National Economic and Development Authority (Neda) and analysts believe the economy is still not safe from the threat of being caught in boom-bust cycles.
On Thursday, the Philippine Statistics Authority (PSA) disclosed that the economy posted a growth of 6.4 percent in the fourth quarter of last year and a full-year growth of 5.9 percent.
While the full-year 2019 growth was the slowest since 2011 when the economy posted growth of only 3.7 percent, it still cemented the country’s 10-year average growth of 6.3 percent between 2010 and 2019.
“[We escaped the boom-bust cycle] a bit but we’re still seeing some boom-bust related to the political cycle. So that’s why we said we want a more robust government budgeting [and] disbursement [process] that would be a bit insulated from this political cycle,” Neda Undersecretary Rosemarie G. Edillon told the BusinessMirror on the sidelines of the National Income Accounts briefing in Ortigas Center, Pasig City.
Boom-and-bust cycles occur when the economy experiences strong growth for one year and weak growth the next. In the case of the Philippines, boom growth occurs during election years while bust growth occurs in nonelection years.
Breaking cycle
Socioeconomic Planning Secretary Ernesto M. Pernia said to ensure consistent economic growth, the government needs to improve its absorptive capacity to implement projects and programs faster.
He added that the government should also “address issues such as the difficulty in the acquisition of right-of-way, delays in procurement, restrictive auditing rules, and skills shortages.”
Edillon said these are some of the efforts that could help insulate 12 percent to 15 percent of the Philippine economy needed to boost overall GDP growth.
“We didn’t use to grow by this much; in the previous decade that was really a very, very high growth for us. That is actually a good thing, a good sign that there’s a lot of let’s say private sector-led economic activity that is robust,” Edillon said.
“But with respect to the government sector, because you know it’s about 12 percent to 15 percent of the GDP still, so that is what we need to insulate from these [boom-bust] cycles,” she added.
Economists’ take
Economists, however, believe that, given the country’s strong growth in the past 10 years, the Philippine economy has already escaped its boom-and-bust cycle prison.
Calixto V. Chikiamco, a private-sector economist, said this became possible with the successive economic reforms of several administrations.
These reforms included the general lowering of tariff rates, privatization of state enterprises, fiscal reforms and fiscal sustainability, liberalization of the financial sector, rice import liberalization, and independence of the Bangko Sentral ng Pilipinas (BSP), among others.
This, ING Senior Economist Nicholas Antonio T. Mapa noted for his part, has resulted in 84 quarters of uninterrupted growth, a first for the Philippines.
“Our relatively strong macroeconomic fundamentals for the last 10 years have anchored the economy on stronger footing and boosted our economy’s capacity to deflect external threats and pressures,” University of Asia and the Pacific School of Economics Dean Cid Terosa said.
“Strong domestic consumption and resolute capital formation have pegged the economy to a firmer foundation. Also, economic policies have been relatively consistent and dedicated to economic growth, employment generation and price stability,” he added.
Nonetheless, efforts must be exerted to ensure the economy does not get caught in these cycles again. Chikiamco said the economy remains susceptible to a boom-and-bust because of various structural weaknesses in the economy.
Chikiamco said these structural weaknesses include low agricultural productivity, the presence of monopolies and duopolies in key industries, low export to GDP ratio, concentration of exports in electronics, weak manufacturing sector, and high cost of doing business.
He said these weaknesses make the economy vulnerable to external shocks, such as a dramatic increase in oil prices, or internal shocks, such as an increase in food prices.
Risks from populism
Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III added that part of the vulnerability of the economy is populism under the Duterte administration.
“Risks are real in light of Duterte’s populism —which fortunately has been checked by economic manager—and Duterte’s disregard for rule of law, bringing fear and uncertainty,” Sta. Ana said.
Former Socioeconomic Planning Secretary Romulo L. Neri said a “pro people President” helped guard against business abuses and ensure better consumer welfare. He said what is needed is an “action-oriented and meritocratic bureaucracy.”
UnionBank Chief Economist Ruben Carlo Asuncion agreed that reforming the bureaucracy is important, particularly in terms of improving absorptive capacity. He said absorptive capacity of agencies and local government units must be addressed.
In order to sustain growth, the government cannot rely solely on its ambitious infrastructure development program. More permanent and sustainable solutions to strengthen the economy must be sought, Asuncion said.
“The boom-and-bust cycle is inevitable. There will always be a bust in a boom, but will the bust erase all that the boom has created? Gains should be stronger, longer or higher than possible losses,” he said.
Don’t overleverage—Neri
Emilio S. Neri, BPI Lead Economist, said it is also crucial for the economic team not to “lose focus and overleverage the economy again” which would make the country susceptible to “busts.”
Neri said one indicator of “self insurance” is the country’s foreign reserves, making sure that it can cover the Philippines’s import bill and external debt.
Mapa added that the country should now focus on its external position, ensuring that monetary policy is attuned to local developments.
Image credits: Nonie Reyes