Can the Philippines achieve its annual GDP growth target of 6.5 percent to 8 percent between 2023 and 2028? Per calculations by our technocrats, such a pattern of economic growth will enable the PBBM administration to reduce poverty level to a single digit, return the debt-to-GDP ratio back to less than the 60 percent global threshold, and most importantly, elevate the country to the “upper middle-income status.”
Not many are convinced that the PBBM administration shall be able to attain the above targets. The Philippines has a long history of development “misses.” The technocrats’ high growth projections outlined in the quinquennial (five years) Philippine Medium-Term Plans since the 1970s have all failed to materialize despite the CGE economic modelling done by favored liberal economists. This pattern of misses dates back to the martial law decade of the 1970s when the National Economic and Development Authority (Neda) aggressively pushed for the adoption of the national economic development program dubbed labor-intensive “export-oriented industrialization” (EOI).
And yet, after five decades and a series of EOI-augmenting policies designed by the IMF and the World Bank such as the trade/investment liberalization program, the Philippines has very little to show for the success of its EOI program. In contrast, the more protectionist and non-FDI-dependent South Korea and Taiwan became the industrial giants and export dynamos of Asia in these decades.
The most glaring illustration of how economic technocrats, using perfect competition assumptions, can err so badly in their economic CGE-based projections is amply shown in the Senate ratification of Philippine membership in the World Trade Organization (WTO) in 1995. The Senate was informed by these economists that non-ratification would lead to economic collapse while WTO membership ratification would not only strengthen the economy but would also lead to the creation annually of half a million “new jobs” in industry and half a million “new jobs” in agriculture. So what is the score 28 years after? Stagnant industrial development, vastly-eroded agricultural sector and limited jobs in both sectors.
Not surprisingly, farmer organizations, having seen the disastrous results of Philippine membership in the WTO, have been opposing the Senate ratification of Philippine membership in the Regional Comprehensive Economic Partnership (RCEP). They ask: is the RCEP trade deal “based on equality, reciprocity, mutual benefit and national interest”? They ask: how ready is the Philippines for the flood of goods from China and other trading collossi that RCEP’s liberalized regime is likely to unleash? What, in the first place, has been the gains of the Philippines from its trade liberalization commitments under the IMF-World Bank’s structural adjustment program (imposed as a policy conditionality in the 1980s), WTO’s trade liberalization and other free trade agreements that the country entered into in the last few decades?
But back to the 2023-28 economic forecasts of the PBBM administration.
In January 2022, the government came up with a number of macroeconomic projections for the whole year. These included the following: GDP growth of 7.0-9.0 percent, inflation of 2.0-4.0 percent and peso-dollar rate of P48-52 per dollar, unemployment rate of 5.6-7.1 percent, and current account balance of $6.7 billion. The government also proclaimed that the economy is generally stable because the Central Bank had by the end of 2021 accumulated gross international reserves valued at $117 billion, equivalent to 11.1 months of imports. With these forecasts, the economic technocrats, from the Duterte to the PBBM administrations, informed the nation that recovery is now fully underway.
Recent GDP data released by the PSA tend to support the government’s growth forecasts. The economy clocked 7.6 percent growth in the third quarter of the year. Thanks to the post-Covid re-opening of the economy and electoral spending, the GDP growth in the first half of 2022 was also above 7 percent. With revenge Christmas spending by the country’s elite and the OFW families, there is no doubt that the full-year GDP growth target is attainable.
The government spokespersons are also happy to announce that unemployment has been going down, reaching a record low of 5 percent in September. So with unemployment down and GDP up, is the Philippines now in the cusp of an economic boom?
Here’s the more relevant question to pose: is growth benefiting the country’s majority and is it sustainable?
As it is, a year of high GDP growth is not enough to reverse two years of economic stagnation under the militaristic lockdowns imposed by the Duterte administration in 2020 and 2021. The economy is not yet back to the pre-Covid level. One simply has to go around the country to see how many businesses, shops, restaurants and even schools have remained closed or barely surviving.
The GDP also does not show the poor quality of jobs available in the labor market. A recent policy brief published by the UP Center for Integrative and Development Studies (Emily Cabegin, “The Informal Labor Carries the Brunt of Covid-19-Induced Economic Recession,” 2022) shows that four out of five workers are “informal,” meaning they have precarious or unprotected jobs in the large informal economy and in the formal sector (as “endos” and casuals). In short, the economy is not churning out good quality jobs for the majority of the work force. This means the low unemployment rate in the country is due to the efforts of the poor and jobless or near jobless to accept whatever jobs are available no matter how menial or “indecent” these jobs are—no job security, no fair work standards observed and low remuneration or compensation.
The bad labor market situation is compounded by the rampaging inflation that is eating into the incomes of everyone—both regular and non-regular workers in the formal labor market and the numerous workers in the large informal sector. Inflation reached 7.7 percent in October to the dismay of the economic planners. Low quality jobs amid an inflationary situation means endless belt tightening by the poor. Mahar Mangahas of Social Weather Stations observed that “prolonged hunger” has increased in the NCR, affecting 16.3 percent of the NCR households. Hunger is also rising in Mindanao, especially in banana plantations hit by the Panama disease.
To improve the situation for the numerous poor, the government should go beyond the crafting of short-term “ayudas” that can ease pangs of hunger and destitution by a week or two at the most, such as DOLE’s TUPAD, an emergy employment program. The government should abandon the idea that continuous high growth of the economy benefits everyone. It does not, unless social and economic reforms are instituted to make growth broad-based and beneficial to everyone.
Growth, of course, should also be sustainable. In this area, one is astonished over the gung-ho atittude of policy makers from the Executive and Legislative branches on the sustainability of growth. Data released by the Central Bank shows that the balance of payments deficit has been widening and the gross international reserves is now down to $93 billion (as of September), which can cover 8 months of imports. The inflows of FDI are also reported to be shrinking. And yet, due to the numerous FDI pledges received by PBBM in his foreign sorties, the economic planners assume that things can only be better.
Nobody seems to be paying attention to the warning of Nouriel Roubini, one of the few economists who predicted the global financial crisis of 2007-2008. The global “stagflationary debt crisis” is here and will be persistent. The Chief Economist of the IMF, Pierre-Olivier Gourinchas, agrees because of the unresolved Ukraine war, China slowdown and inflationary trends around the world. He wrote: “The worst is yet to come, and for many people 2023 will feel like a recession”.
So how should the PBBM administration do the economic piloting? Continue adopting a business-as-usual posture and assume that high growth forecasts are likely to be fulfilled and would benefit the country’s poor? Or is it not time for an economic reset and for the government to undertake a more serious stock taking as what the farmer organizations resisting RCEP are asking?
Are we in the cusp of an economic boom, or are we standing on a slippery recessionary slope?
Dr. Rene E. Ofreneo is a Professor Emeritus of the University of the Philippines.
For comments, please write to reneofreneo@gmail.com.