PHL economy poised to sustain growth momentum

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The passage of the government’s tax reform plan is seen crucial to the government's infrastructure build-up. Photo shows taxpayers filing their income tax return at the Bureau of Internal Revenue main office in Quezon City. -- Michael Varcas/PHILIPPINE STAR

By Melissa Luz T. Lopez, Senior Reporter

THE Philippine economy will maintain an above-6% expansion in 2018 supported by “broad-based” growth drivers, a local think tank said, touting the need to put the tax reform plan in place to keep the economy competitive.

Economists tapped by the Center for Philippine Futuristics said the Philippines is poised to keep growing between 6-7% in 2018, with local conditions supportive of steady expansion.

“I don’t see anything going terribly wrong in 2018, leaving 2018 with a relatively stable economic environment for business to proceed,” former Finance Secretary and now Philippine Veterans Bank chairman Roberto F. De Ocampo said in a Friday forum held at the AIM Conference Center Manila.

Mr. De Ocampo said Philippine gross domestic product (GDP) will likely continue to move at a pace “between 6-7%,” in line with forecasts given by global lenders such as the International Monetary Fund and the World Bank at 6.6%.

The economy grew by 6.9% between July-September, beating expectations to surpass the upwardly revised 6.7% climb during the second quarter, the Philippine Statistics Authority announced on Thursday.

The third-quarter GDP print brought the year-to-date average to 6.7%, well within the 6.5-7.5% growth goal of the government.

“Solid macroeconomic fundamentals will continue to support the country’s robust economic growth. The strong fiscal position backed up by robust revenue collection will support double-digit expansion in public construction, which is one of the main pillars of growth,” the Department of Finance (DoF) said in a statement, noting that conditions will remain favorable to sustain this momentum.

The DoF, however, cited the need for increased investments on infrastructure and basic services, as well as the passage of fiscal reforms to fund public spending.

While noting that there are no “major” threats in the domestic scene, Mr. De Ocampo said tensions in the Korean peninsula and terrorist incidents globally could potentially affect growth dynamics.

However, he noted a more urgent concern would be the passage of the government’s tax reform plan.

“The tax reform bill is expected by the Executive branch to generate revenues that would allow it to have a healthy kind of ‘Build, Build, Build’ in tandem with expected inflows from ODA (official development assistance) and from the private sector. It’s going to be a necessary element in maintaining this growth prospect,” Mr. De Ocampo said, noting that he expects these reforms to take effect by the “middle of next year.”

The DoF expects Congress to approve a unified version of the Tax Reform for Acceleration and Inclusion (TRAIN) bill and have it ready for President Rodrigo R. Duterte’s signing into law by Dec. 15, although the Senate is yet to conclude its plenary debates on the measure as of this writing.

The Duterte administration wants to raise P157.2 billion through the measure, although the House of Representatives approved a bill that would raise P133 billion in net revenues. The Senate version, which is still under discussions, is expected to generate a smaller amount.

The Senate and the House have to thresh out the final version at a bicameral meeting before it can be forwarded to Malacañang for Mr. Duterte’s signature.

Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc., said the Philippine economy is seen to grow by 6.6% this year and 6.8% in 2018, although the policy shifts and interest rate tweaks in the United States pose a big concern.

“The sentiment continues to be here. There’s nothing to be worried about on the domestic front but the only thing I’ll be waiting for is the TRAIN plan to be passed — the earlier, the better in light of what’s happening in the US,” Mr. Ravelas said, noting a parallel tax reform initiative in the US.

Offhand, Mr. Ravelas said this could trigger volatilities by way of portfolio investment outflows from emerging markets moving into developed economies.

Mr. De Ocampo, however, warned that an extremely watered-down version of the tax bill could be rendered next to useless, and would do little to help support the government’s ambitious spending plans.

Sittie M. Butocan, deputy director at the Bangko Sentral ng Pilipinas’ Department of Economic Research, said the country’s fundamentals remain “intact” alongside benign inflation that is comfortably within the 2-4% target band.

However, issues on political and policy uncertainty, the pace of rate hikes in the United States, China’s economic rebalancing, delays in tax reform, and infrastructure gaps stand as key risks to the outlook, Ms. Butocan said.

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