Signs And Wonders


It is something we expected all along. The Philippines’ growth story started well with the lifting of economic lockdown following the easing of COVID-19 virus. But it was bound to lose momentum. From a high of 12% during the 2nd quarter 2021, real GDP growth slowed down, and more obviously trended down to 7.7% in the 3rd quarter 2022 continuously to 4.3% in the 2nd quarter 2023. So far, we have recorded a 1st half 2023 economic growth of 5.3% against a whole-year target of 6-7%. Revenge spending by the households and the public sector is fast receding. The rise in private investment in the 1st half 2023 was barely a third of last year’s expansion.

For us to achieve even the lower end of the target range, we need to expand by an average of around 6.7% for the rest of this year. Even if we are overambitious, this is an impossible task. Our economic governance is below par. There’s barely a semblance of counterweights, everything that should not happen seems to be happening before our very eyes.

Thus, the outlook could only be pessimistic, and the Manila-based Asian Development Bank (ADB) formalized this when it announced the other day that it was downgrading its growth forecast of the Philippines for 2023. While maintaining that the country’s growth story remains firm, the ADB scaled down its forecast from 6% to only 5.7%. Some nominal improvement is anticipated next year by 6.2%, but still below the 6.5-8.0% target growth.

It was correct for ADB to trace its pessimistic growth outlook to both above-target inflation and global headwinds. High inflation depresses private and public consumption as well as discourages investment due precisely to hollowing markets. Year-to-date, headline inflation averaged 6.6% while core inflation stood at 7.4%. In particular, that August uptick to 5.3% in inflation signals that the price pressures have not exactly resolved themselves. Supply shocks, while normally non-persistent, seem to be coming back with a vengeance and with a sticky streak.

For one, global oil prices have breached the Government’s high-end assumption of $90 per barrel. Pump prices, as reported, have not slowed down since July, bringing total increases for diesel to P16.90 per liter, gasoline to P11.60 per liter, and kerosene to P15.74 per liter. As far as we know, pump prices of various petroleum products are monitored by the Bangko Sentral ng Pilipinas (BSP) as they impact directly transport cost, domestic food prices and minimum wage. If we go by these periodic upward adjustments in oil pump prices, the upside risks could likely bring the current forecasts of the BSP of 5.6% and 3.3% for 2023 and 2024, respectively, further up. More seriously, they could generate second-round effects in terms of demand for higher wages and transport fares. Once upset, inflation expectations could further entrench inflation at elevated levels.

For another, the foul up in rice policy is nothing less than a case of the tail wagging the dog. The tail is rice accounting for 9.6% of the overall consumer price index, virtually driving the whole price dynamics. If the Department of Agriculture just did its homework well, we should simply be focusing on the issue of optimizing rice production in the volume permitted by our current resource endowments, rather than gunning for the impossible goal of self-sufficiency in rice. That being the case, the issue reduces to promptly determining our deficit and with the rice tariffication law in place, allow the private sector to import from Vietnam, Thailand, and other global sources outside the harvest season. The proceeds of tariff duties should help improve rice productivity by way of research and development and other forms of infra support.

According to former Agriculture Undersecretary Fermin D. Adriano, the law should lead to more efficient resource allocation and support other high-value agricultural products with good comparative advantage. That should provide our farmers more opportunities to make more money while helping stabilize both the supply and price of this staple commodity. While the tariff rates could be brought down temporarily, by no means should we consider a total scrapping of this bill that took ages to pass through Congress.

But with the government fixated on using executive orders to flush out profiteers and hoarders and impose price controls on both regular milled and special milled rice, we made matters worse. We all knew that El Niño was just around the corner, and some major rice producers have announced they are restricting their exports, yet we literally bared ourselves to the world, saying that we are short of rice in big quantities. Without exaggeration, we moved the global rice market price up. Bloomberg even wrote that the rice crisis in the Philippines has sounded a global inflation alarm!

Now, we have to subsidize rice retailers because rice price caps wiped them out. If price controls are prolonged, are we equally prepared to also subsidize rice farmers, middlemen, and wholesalers? We hope our economic managers do realize that by supporting price control, they are also sanctioning the resulting shortages and, ultimately, the black-market price.

That brings us to the issue of fiscal accommodation and its impact on economic growth and inflation.

The other day, Marikina Representative Stella Quimbo echoed what Budget Secretary Amenah Pangandaman announced in June 2023 — that the Philippines would be borrowing P2.46 trillion to partly fund the P5.768 trillion national budget. This means we are borrowing over 43% of our budget because we could raise only 57% in public revenues. It’s so easy to justify such huge borrowing based on the need to sustain economic growth that is also inclusive, something that is claimed to be consistent with our Medium-Term Fiscal Framework and the Eight-Point Socio-Economic Agenda and positive for attaining the objectives of the Philippine Development Plan 2023-2028.

We have been monitoring the budget process that is now in progress in both the House and the Senate, but my general impression in all the proceedings is that an ultrafine-tooth comb went through those line items that matter most to our development goals, while questionable expenditure items received perfunctory approval.

This is no quiz for us anymore, because both houses earlier approved the Maharlika Investment Fund bill into law, something which would effectively divert funds from infrastructure and social services to an investment fund. Yet the Philippines has no surplus fund to begin with. Nowhere in those three official documents was any reference made that an investment fund is critical to sustainable growth. That fund involves pricey sacrifice of government dividends in financing the budget.

Except for the conscientious members of the minority in both houses, no one summoned any courage to question the provision of confidential and intelligence funds to some departments, or the implementation of identical infrastructure projects by different agencies of government. Congress has the power over the purse, but no one among them raised the costly issue of the number of officials — undersecretaries, assistant secretaries, and even security officers — in many offices and departments.

Some quarters have also proposed the suspension of both the value added tax and excise tax on fuel to moderate inflation, but the Department of Finance objected to it, raising the issue of enormous forgone revenues in the amount of nearly P73 billion in one quarter alone. What is bad about it is its regressive impact on consumption. Only the moneyed class, with their countless SUVs and luxury cars, would benefit from the resulting decline in oil prices with the suspension of applicable taxes. Agree, but what options do our finance officials have to offer to reduce fuel prices and mitigate inflation and encourage more production?

There is a name to all this game of hitting and missing policies that work, a game which we thought we knew how to do things, but we actually are just prepared to simply survive. Muddling through, they call it, or disjointed incrementalism. We can only hope that we don’t foul up in the most critical last quarter and disqualify ourselves from the trust of the millions of voters, or the investment grade credit rating, or forever dwell in the lower middle-income trap. It’s the least among us who stand to share most of the burden.


Diwa C. Guinigundo is the former deputy governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.