Declining inflation and challenges for the economic team
This week saw a number of good reports in public finance and price stabilization published in BusinessWorld: “Government rightsizing bill signed into law” (Aug. 5), “DBM reluctant to reenact ‘most corrupt’ 2025 budget” (Aug. 5), “Philippine wholesale price growth eases to 3% in June” (Aug. 5), “Stocks go up as inflation cools to near 6-year low” (Aug. 5), “Inflation cools further in July to 0.9%” (Aug. 6), “Bank lending jumps to four-month high in June” (Aug. 6).
The “Government Optimization Act,” RA 12231, formerly called the National Government Rightsizing Program, is a long-overdue piece of legislation because the expenditure side of the budget remains the bigger problem than the revenue side, which is why our annual budget deficit and public borrowings remain high — at least P1.5 trillion a year. There is unnecessary redundancy in the bureaucracy that contributes to ever-rising public spending.
Congress and the President should have opted for a large reduction in National Government personnel as programs and personnel in local governments keep expanding too. But the President opted for optimizing the services of those who are already hired. Which should imply that new hires should be kept to a minimum.
Perhaps the biggest positive economic news this year, so far, is the low inflation rate of only 0.9% for July 2025, just a notch higher than the 0.8% in October 2019 and the 0.7% in April 2016.
We went from having the highest inflation rate in East Asia in 2023 at 6%, to 3.2% in 2024, and now it is on the way to possibly 1.8% this year. In contrast, countries in North and South America and Europe have had inflation rates above 2% this year (see table).
Accompanying the State of the Nation Address (SONA) by President Ferdinand R. Marcos, Jr. last week, the Department of Finance (DoF) released a statement enumerating some economics positives achieved by the administration. It said that, 1. the Philippines is among the fastest-growing economies in Asia; 2. labor force participation is at an all-time high; 3. prices remain stable, especially for low-income households; 4. the Philippines has achieved the highest revenue effort in 27 years, on track with fiscal consolidation; 5. the deficit and debt remain at manageable and sustainable levels; 6. concessional, strategic, and transparent financing for the Build Better More Program; 7. the Philippines sustained high credit ratings, proof of strong investor confidence; and, 8. laws were passed to boost investments, create jobs, and generate revenues.
I concur with the DoF assessment, but I will add that the national spending side needs more control because we need to create a fiscal buffer in case of another economic and health calamity which will require another round of high borrowings.
So far, the economic team is gaining headway to build momentum for the next three years, the second half of the Marcos Jr. administration. New challenges for them, I believe, are the following:
Finance Secretary Ralph G. Recto has to produce more revenue from the Bureau of Customs, from the mandatory remittances of government corporations, and from the privatization of government assets and enterprises. The CBK hydro plant privatization proceeds would be a good start next year.
Budget Secretary Amenah F. Pangandaman has to operationalize the Government Optimization law and Open Government Partnership (OGP) to have a leaner bureaucracy and more transparent budgeting and monitoring.
Economics Secretary Arsenio M. Balisacan has to work closely with the infrastructure team so that economic planning and public spending can deliver more tangible and physical results, not just social services that tend to go on forever and lead to more state-dependence instead of self-reliance by the people.
Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation.
