Accolades from Aletheia Capital
Here’s another accolade given to the Philippine economy from an independent foreign analyst. For the past two years, I have made it a point to always cite outside think tanks, international organizations, foreign banks and other independent sources whenever I present bullish forecasts about the Philippine economy. The reason is that I have acquired a reputation for being a “prophet of boom,” that I am overly optimistic about the Philippine economic future. People who listen to me usually take what I say with a “grain of salt,” assuming that the reality is less rosy than what I prognosticate. Fortunately, over the last two years, there have been numerous outside observers who have been more bullish than I when forecasting the economic future of the Philippines.
For those who have been listening to me in the many economic briefings I have been giving, they will remember independent outside sources like Oxford Economics, The Economist, Hongkong Shanghai Bank, Goldman Sachs, the Japan Credit Rating Agency, the World Bank, and the Asian Development Bank ranking the Philippines as one of the most promising emerging markets in the Indo-Pacific region in the coming years.
I am glad that I can add Jim Walker of Aletheia Capital, ranked as No. 1 in Asia among independent research firms, to this list. After his recent visit to the Philippines, he came out with a very positive assessment of the Philippine economy in an article entitled “Philippines in Fine Form.” I have gotten his permission to quote profusely from this article which is a result of a series of consultations he had with leading economic analysts in the Philippines.
He started his article with his average growth projections of GDP growth for the whole of 2023 of select countries in Southeast Asia after considering the growth rates reported for the first quarter of the current year. In his forecast, the Philippines will grow the fastest at 7.1% in contrast with Indonesia (5.2%), Malaysia (3.5%), Thailand (2.9%), Vietnam (2.9%), and Singapore (0.8%). Especially notable is the low forecast for Vietnam which many critics of what President Ferdinand “Bongbong” Marcos, Jr. is doing always cite as stealing the thunder from us.
He then cites the latest consensus growth forecasts from the Emerging Markets Economic Data Ltd. (EMED) Survey. The Philippines also tops the list at 5.5%, followed by Indonesia (4.9%), Malaysia (4%), Thailand (3.6%) and Singapore (1.9%). There is no forecast for Vietnam on the EMED survey.
Jim was pleasantly surprised with these figures. I remember that he was one of those who often referred to the Philippines as the “sick man of Asia” in the 1990s and early 2000s. As he wrote in his current report, “for a country that was [at the] bottom of the Asian Tiger league in the 1990s, the turnaround in the Philippines in the last decade has been impressive. Credit Ratings Agencies agree, with Standard and Poor’s rating only Singapore and Malaysia higher than the Philippines.” He has a positive assessment of what the present Administration is doing to address the debt situation, which was a result of the extreme budgetary measures taken during the pandemic period. In his words, “it is heartening to note that the authorities in Manila are aiming to take gross government debt to GDP back to 40% by 2028. Given the double-digit nominal GDP growth being recorded at present, this is doable.”
I have been saying in my briefings since the beginning of the Marcos Jr. Administration that, even if the current President does very little to add to the sound economic institutions and improved economic policies that have been the results of at least 30 years of slow and painful reforms, the Philippine GDP can continue to grow at 6-7% yearly until 2028. I am glad that Jim gives very specific examples of these improved institutions and policies:
“The fiscal deficit is already headed lower. From a high of 8.6% of GDP in 2021, it is projected to hit 6.1% this year and be at 3% before the end of the President Marcos’ term. With just 14% of GDP raised in tax revenues this will require increased tax efficiency and new revenue raising measures, some of which are to be enacted 2023/24, with expenditure held constant at 20% of GDP. The goals are ambitious but, in fairness, the Philippines has been more creative than its peers in overhauling the tax system in recent years. The Tax Reform for Acceleration and Inclusion (TRAIN, 2018) Act and Corporate Recovery and Tax Incentives for Enterprises Act (CREATE, 2021) have been successfully implemented although they are not yet fully effective. The Rice Tariffication Act (2019) simplified importation of one of the country’s staple foods and, from the proceeds, allows farmers to tap a fund to improve competitiveness.”
I know for a fact that Jim interviewed some economists who were strong supporters of Leni Robredo. I find it significant, therefore, that whether grudgingly or willingly, these analysts acknowledged that President Marcos Jr. was on the right track. Indeed, in Jim’s words, some of his contacts have been “pleasantly surprised” by the efforts of the President.
Among the decisions and efforts of the President that received widespread approval were his “retaining solid, technocratic macroeconomic managers at Finance and Bangko Sentral (BSP).” His embarking on trade missions and diplomatic visits to countries such as the US, the UK, and Indonesia. His continuing Duterte’s policy of being friendly to foreign investment and his touting the idea of “friendly shoring” to US, European, and Japanese direct investors. He also cites the relatively predictable political environment now prevailing in the Philippines compared to the uncertainties brought about by the presidential elections in Indonesia and the political transition in Thailand.
His moves in international relations also received kudos from Jim: “His courting of the US, re-establishing a relationship his father valued but ultimately broke, has gone down well in business circles. So too has his continuation of Duterte’s intention to join the China-led Regional Comprehensive Economic Partnership (RCEP) framework, his willingness to make pragmatic choices and improve relations across geopolitical spectrum is restoring confidence at home.”
The assessment of at least this one foreign analyst is that the Philippines political prospect look stable and, potentially positive for the next five years. May I add that this view continues to be valid despite the political drama that we have witnessed in the last few weeks concerning former President Gloria Macapagal-Arroyo and Vice-President Sara Duterte. President Marcos Jr. and Speaker Martin Romualdez are in complete control of the situation.
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.
