Upside and downside of the national economy

By Satur C. Ocampo
At Ground Level | The Philippine Star

As expected, President Aquino and his economic team wax euphoric over the official report that the national economy expanded by 6.6% in 2012, from 3.9% growth rate in 2011.

“It is a resounding affirmation of the Aquino administration’s fiscal strategy, backed as it is by our robust macroeconomic fundamentals and more importantly, (by) the principles of good governance,” trumpeted Budget Secretary Florencio Abad.

The P-Noy team can now boast that the figures, presented last Thursday by the National Economic and Development Authority and the National Statistical Coordination Board, justify the many praises heaped on the Philippines and the P-Noy government. The latest of such praises came from IMF managing director Christine Lagarde and American economist Nouriel Roubini.

(Roubini became famous when he correctly predicted the collapse of the US housing market that spurred the 2008-2009 global financial-economic crisis, which still besieges Europe. He spoke last Wednesday at an investment forum in Manila.)

Lagarde lauded the Philippines for moving forward despite the global economic crunch. The IMF recently upgraded its forecast on PH economic growth to 6% in 2013 and 5.5% in 2014, from its earlier figure of 4.8% for both years.

On his part, Roubini described P-Noy’s fiscal policy as a “success story,” pointing to the budget deficit reduction to 2% of GDP, the paring down of the public debt, and the sustained buildup of the gross international reserves.

He said the Philippines has the potential to achieve higher growth rate given its rich human capital (big pool of educated, English-speaking young people, millions of OFWs supplying huge foreign exchange remittances, a rising middle class, and consumer-oriented society). He also cited the country’s rich natural resources that could boost the development of agriculture and build a manufacturing base.

On the other hand, Roubini noted that economic growth has largely been consumption-led — which isn’t sustainable. He urged a shift “to an economic model slightly less based on consumption and slightly more based on investments.”

The following are what needs to be done, he advised:

Increase government tax revenues; boost the modest flow of foreign direct investments; improve per capita incomes; address rural poverty; increase public investments in infrastructure and human capital (more spending for health care and education); improve the anti-corruption campaign; reduce the cost of doing business in the country; and provide better financial access to small and medium-size enterprises.
These prescriptions have been put forward before, but little has been done about them. The urgency of action by the government is further highlighted by other reports on the upside and downside of the Philippine economy.

Last week, a relatively new credit-rating outfit set up in Malaysia, RAM Rating Services, came out with its own sovereign ratings for the Philippines as one of the five “Leading Asean Sovereigns,” alongside Malaysia, Singapore, Indonesia, and Thailand.

The report shows how poorly the Philippines rates vis-à-vis the other four. For instance:

hlH is rated “BBB” on long-term loans (having “moderate capacity” to repay) and “P2” on short-term loans (“adequate capacity”). Both are the lowest ratings. In contrast, Malaysia and Singapore are rated “AAA” on long-term loans (“superior capacity”) and “P1” on short-term loans (“strong capacity”). Indonesia and Thailand are rated “AA” and “P1” (“strong capacity” for both long- and short-term repayments).

• Although RAM notes Phl strength in sustaining current-account surpluses, rising GIR ($90B), and improving economic conditions, it says these positive factors are eroded by a “heavy government debt burden, mostly in foreign currencies ($62.9B); a small revenue base and hefty interest expenses, and a weak institutional framework.”

• On fiscal profile: “Persistent deficits due to the government’s weak revenue-generating capacity; tax revenues are its main source of income. As a percentage of GDP, government revenue averaged 15.3% from 1990 to 2011 and is the lowest among its peers in the region.”

• On inclusive growth: RAM points out as negative factors the mass poverty that affect 25% of the population, plus the national unemployment rate of 6.9% and underemployment rate of 19.3% in the second quarter of 2012.

(IBON Foundation’s data puts the unemployed at 4.345 million, or10.3%, and the underemployed at 7.312 million, or 19.3% as of April 2012. It also notes that the estimated “family living wage” for a family of six in the National Capital Region is pegged at P1,022, whereas the nominal minimum wage is P446, or only 44% of the living wage.)

Add this: Former Budget Secretary Benjamin Diokno, citing October labor statistics, derides the 6.8% growth rate as “labor-shredding growth” because close to one million jobs were lost in 2012.

Indirectly acknowledging these negative factors, Socioeconomic Planning Secretary Arsenio Balisacan declared:

“It is our immediate task to put in place policies and implement programs that will sustain our economy’s growth over the medium term. We shall continue planting the seeds of a structural transformation in our economy to make it more investment- and industry-led. This, in turn, will mean more jobs and employment opportunities of high quality for Filipinos, thus ensuring that growth is inclusive and benefits all sectors of society.”

Let’s see how these will come up in concrete, credible actions.

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February 2, 2013

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