One of Asia’s Best Performers Despite High Inflation

The Philippines remains one of Asia’s best-performing economies and is even poised to move up to upper middle-income status after managing to put in check an inflation surge which came alongside a spike in world oil prices in 2018.

“The economy has been on a roll. It has been growing at least 6 percent for 14 consecutive quarters now,” Socioeconomic Planning Secretary Ernesto Pernia said, noting that economic growth is sustained and uninterrupted.

The country’s gross domestic product (GDP) slowed down to 6.3 percent in the first three quarters of 2018 from 6.8 percent during the same period last year, dragged by lower agricultural output and softened household consumption amid accelerated increase in prices, particularly food.

The Philippines needs to expand by at least 7 percent in the fourth quarter to attain the low-end of the government’s target of 6.5 to 6.9 percent for the whole of 2018.

“This is a tall order, but the government remains committed to reaching the revised growth target for the year, which 6.4 to 6.9 percent,” said Pernia, also the National Economic and Development Authority (NEDA) Director General.

Faster inflation rate

Inflation rate fell to a four-month low of 6 percent in November after surging to a nine-year high of 6.7 percent in September and October on the back of government efforts to tame rising prices.

Top economic managers believed that President Rodrigo Duterte’s issuance of Administrative Order No. 13, removing restrictions on the importation of agricultural products, was crucial in the country’s efforts to bring down the prices such of rice, fish, meat, vegetables, and fruits. “We are optimistic that increases in consumer prices have already peaked and we expect inflation to normalize in the medium term,” Pernia said.

The NEDA chief is also banking on the recent passage of the Rice Tariffication Bill in Congress and its nearing enactment. The proposed law is expected to reduce rice prices by up to PHP7 per kilo.

“Notwithstanding, the positive development in the global oil market will also help in tempering consumer prices further over the near term, particularly of energy-related items,” he added.

The Bangko Sentral ng Pilipinas (BSP) projects inflation to average at 5.2 percent this year, and to ease in 2019 to 3.2 percent.

Emilio Neri Jr., Vice President and lead economist at the Bank of the Philippine Islands (BPI), said the country recorded an inflation rate he dubbed “temporary faster” this year, triggered by the 44-percent increase of average oil prices for the first nine months of the year.

“Practically, we had an oil price shock this year that happens only every 10 years,” he said. “Last time we saw it (oil price shock) was in 2008 and the same thing happened, even a higher inflation. So, we are quite confident that next year it’s not gonna be here anymore.”

Neri said he expects inflation to decline to 3.6 percent next year due to the projected normalization of oil prices even if the second tranche of the oil excise tax increase pushes through.

President Duterte has approved the recommendation of the Development Budget Coordination Committee (DBCC) to proceed with the implementation of the second tranche of excise tax on fuel effective January 2019, considering the downward impact on inflation of the steep drop in the Dubai crude oil prices.

The scheduled increase in oil excise taxes is stipulated under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Build, Build, Build

The government is making definite progress in its massive infrastructure program, widely known as the “Build, Build, Build” (BBB) program.

As of end November 2018, 35 out of the 75 infrastructure flagship projects have been approved by the NEDA Investment Coordination Committee (ICC) and confirmed by the NEDA Board. These have a total investment requirement of PHP1.54 trillion.

Meanwhile, 31 projects are expected to be approved by the NEDA Board upon the recommendation of the ICC. “In terms of project timelines, we expect 31 projects to be completed by 2022. The remaining 44 projects will be completed beyond this administration’s term but may commence implementation during this administration,” Pernia said.

Under the BBB, most of the priority infrastructure programs are roads, bridges and airports that are seen to help boost the economy, most especially in the far-flung communities of Mindanao. “We are certain that the government’s efforts will pay off and we will see improvements in the state of the country’s infrastructure over the medium-term,” he added.

2019 outlook

Pernia sees the economy accelerating closer to 7 percent next year on the back of infrastructure and election spending.

“The resilience of the Philippine economy in 2018 will likely continue over the medium term. With key reforms scored this year, we expect the performance of the economy to be robust despite domestic and external risks. This will be supported by the “Build, Build, Build” program gaining steam expected next year,” he said.

The NEDA chief noted the global growth is expected to slow down starting next year, noting external environment “seems to be less supportive” of the country’s potential economic growth.

As more projects of regional significance are expected to be included in line agency budgets for implementation, Pernia said these could provide a strong foundation for growth next year.

This follows the signing of a Joint Memorandum Circular between NEDA and Department of Budget and Management (DBM) strengthening the link between national planning and budgeting with those of the regions.

Pernia said he also expects a bouncy tourism sector with the Philippine hosting of the 30th Southeast Asian Games next year.

“In terms of policies, NEDA has been on the forefront of several campaigns and advocacies for key reforms that will pave the way for economic growth that is inclusive and leaves no one behind. We anticipate reforms successfully laid out in 2018 to be felt by 2019,” he said.

Pernia cited the signing into law of the Ease of Doing Business Act, or Republic Act 11032, which aims to simplify the requirements and streamlines procedures in starting and opening a business in the country. “This hopefully will result in enhanced business competitiveness, lessened bureaucracy, and reduced opportunities for corruption, while more foreign businesses are attracted to invest in the country,” he said.

Pernia further said the signing of Executive Order No. 65 promulgating the Eleventh Regular Foreign Investment Negative List (RFINL) is also a boost to the country’s business competitiveness. “Liberalizing more sectors for foreign investment in the country will open the country for new technology and innovation,” he added.

Pernia also vowed to continue to push reforms in the coming years, as he reiterated a call for the immediate passage of the amendment of the Public Service Act, the Universal Health Care Bill, Coco Levy Bill, and the National Land Use Act.

“We urge Congress to pass our budget for 2019 at the soonest possible time. We need this to make sure that we are on track of meeting our development targets,” he added.

Pernia said the government is fully committed to enable the Philippines to join the ranks of upper-middle-income countries by 2019 and reduce poverty incidence to 14 percent by 2022.

By the World Bank’s definition, upper-middle income economies have gross national income (GNI) per capita between USD3,896 and USD12,055. “We are just below the USD3,900,” he said. “By 2019, even we grow only at 4.4 percent per capita instead of 4.9 percent, which has been the case in the past several years, it will hit over USD4,000 per capita by 2019.” (PNA)