By Elijah Joseph C. Tubayan
PHILIPPINE gross domestic product (GDP) growth should pick up slightly this semester from the first half’s 6.45% average on the back of strong domestic consumption and improved state spending, according to a report of the Organization for Economic Cooperation and Development (OECD) that sees the country leading expansion among Southeast Asia’s five bigger economies up to 2022.
“Benign inflation, a stable financial sector, an accommodative monetary policy, robust remittance inflows and a healthy fiscal position should continue to facilitate domestic consumption growth at least until the end of the year,” read the Economic Outlook for Southeast Asia, China and India 2018 which OECD released on the occasion of the three-day ASEAN Business and Investment Summit 2017 at Solaire Resort & Casino in Parañaque City that ended yesterday.
The report also cited “sustained resurgence in consumer confidence,” a pickup in state spending growth to a 7.1% year-on-year clip in the second quarter from the first three months’ 0.2% — though the year-to-date pace “is still subdued compared to last year” and merchandise export recovery that offset a deceleration in manufacturing volume as supportive of 6.6% GDP expansion for 2017, “with growth in 2017 H2 anticipated to be slightly faster than in 2017 H1.”
A BusinessWorld poll of 11 economists late last week yielded a 6.6% median estimate that matched that of Moody’s Analytics for third-quarter GDP growth, which the Philippine Statistics Authority is scheduled to report this Thursday.
OECD’s projected full-year pace for the Philippines, if realized, would be slower than the 6.9% actually clocked in 2016 and compares to the government’s 6.5-7.5% target for this year.
At 6.6%, the Philippines will be faster this year than its comparable peers in the Association of Southeast Asian Nations (ASEAN): Vietnam’s 6.3%, Malaysia’s 5.5%, Indonesia’s 5.0% and Thailand’s 3.8%.
It will also match India’s projected pace, will be slower than China’s 6.8% forecast, but will outdo the 4.8% average of all ASEAN members and the 6.4% average of “emerging Asia”.
The Philippines’ projected 6.4% average in 2018-2022 will similarly outdo forecasts of the other four bigger ASEAN economies and will be faster than its 5.9% 2011-2015 average (which matched that of Vietnam and was the fastest clip among ASEAN 5).
“Consumption and fixed investments, which grew 6.1% and 11.7% on average from 2011 to 2016, respectively, will continue to fuel economic growth until 2022, mainly underpinned by robust remittance inflow from overseas workers, planned big-ticket infrastructure projects and the resilience of offshoring and outsourcing industry,” the report read further.
OECD’s 2017 forecast for the Philippines matches those of the International Monetary Fund (IMF) and the World Bank, and compares to the Asian Development Bank’s (ADB) 6.5% and the United Nations Economic and Social Commission for Asia and the Pacific’s (ESCAP) 6.9%.
For next year — for which the government targets 7-8% — the IMF, World Bank and ADB see 6.7% growth, while ESCAP has projected 7.0%.
The report cited “optimizing infrastructure financing” as the Philippines biggest medium-term policy challenge.
“While improvements have been made in recent years, additional capital and efficient investments will be needed to keep up with demand for infrastructure development in the fast-growing economy,” OECD said.
Noting that the government of President Rodrigo R. Duterte has chosen to rely primarily on state budgets and official development assistance for construction of infrastructure, leaving operation and maintenance of finished structures to public-private partnerships (PPP), OECD’s report said “unpredictable decisions — such as the removal from the PPP pipeline of projects that had been there for a while — can also undermine the government’s credibility in its efforts to get the private sector more involved in infrastructure development.”
“Bureaucratic issues aside, this also stems from limited number of technically capable personnel in some of the agencies involved,” the report said, adding that “[t]he imperfect integrity of the way the country’s institutions operate underscores these shortcomings.”
Instead, OECD said, “the PPP Center could be strengthened in terms of its mandate and resources.”
It also noted that while the country’s bond market “could provide an alternative source of financing” it still needs to be developed further as “the ratio of the total outstanding value of local-currency bonds to GDP remains relatively small.”
The government is currently pushing for legislative approval of the first of up to five tax reform packages in time for implementation in January next year.
The Duterte administration is banking on added revenues from those packages — designed to shift the tax burden to those who can afford to pay more — to help finance up to P8.44 trillion in targeted spending on public infrastructure projects until it steps down in 2022.
The first of those packages, now awaiting Senate approval after it hurdled the House of Representatives on May 31, consists of a reduction in personal income tax rate, to be offset by an increase in the excise taxes for cars and fuel, an excise tax on sugar-sweetened drinks, removal of some value added tax exemptions, as well as simplification of excise and donors tax systems.
“Non-traditional tools, such as levies to capture the appreciation in land value resulting from infrastructure development, could also be considered to raise revenues,” OECD said in its report.