Economic prospects for the next six years

The most immediate concern facing the nation today is economic recovery from the pandemic. This means we need to sustain a high level of growth so that the country overcomes the recent decline in the economy.

The challenge of economic recovery happens at a time of rising prices, the falling value of the peso, and the fiscal debt that has risen to a level because of measures taken to contain the pandemic.

External and political events in other countries, including the issues of public health posed by the pandemic, are dictating the problems that we face.

The new administration’s economic challenge. With big challenges come also huge opportunities to rethink the future. The huge electoral mandate of the new Marcos administration gives it the opportunity to move the country in bold, but sustainable economic directions.

President Marcos made a good start by appointing an experienced and respected economic team to manage the economy. This has been reassuring to the private sector and to the wider economic community with which the country interacts.

Another reassuring immediate development is that the new administration represents a continuity of the economic programs started by the previous administration. There is no-rocking-the boat effect as a consequence of the change in the administration.

Discontinuities arising from the political transfer of administrations in the past have been wasteful and have led to major setbacks. No such thing will happen this time around.

The enthusiastic embrace of the Build Build Build (BBB) program assures that more infrastructure investments will continue with a sense of urgency. The pipeline of such projects has enlarged and more public-private partnerships will accompany current modalities for speeding infrastructure investments.

To get the BBB program to expand significantly requires the mobilization of the nation’s resources to finance the bill. The country’s expanded and more flexible revenue raising capacity is threatened by rising demand for various forms of consumer subsidies. For mega public infrastructures, there is need to rely on long-term development loans for many of the projects.

New economic challenges have arisen from the impact of the Ukraine War, pushing up inflation, especially undue increase in food prices, and volatility and instability in energy prices. To undertake proper response to these challenges, the government needs to employ smart targeting of consumer subsidies to those badly affected.

The President’s decision to pay direct attention (by initially heading the Department of Agriculture) should boost the resurgence of agriculture in the nation’s development.

The new administration also inherits legislation that further liberalizes the entry of foreign direct investments in the country. The passage of a trio of such laws in the last months of the Duterte administration are very good achievements. This will encourage new FDIs in important sectors.

The economic macro-framework. The macro framework surrounding the current plan for the economy under the Marcos presidency is spelled out in the DBCC (Development Budget Coordination Committee) document recently released on the website of the Department of Finance.

The economic plan that underpins this framework will likely be spelled out in the President’s SONA (State of the Nation) address to be delivered this week.

Under certain assumptions about the prices of major imports like crude oil, the peso exchange rate, the inflation rate, and the evolution of exports and imports, the economic managers proposed the fiscal spending plan that provides the basic framework for the investments and growth targets in the economy.

The economy is targeted to grow initially (in 2022-23) in the range of 6.5 to 7.5 percent in the first year. The fiscal plan is designed to guide the spending and resource-raising objectives of the government during the period of the presidency. The spending program sets the pace and nature of the economic aspirations and projects.

The government also intends to achieve significant reduction of poverty as target. And within that framework, the other target is to move toward a middle-income developing country status during the period.

The assumptions of the plan are within the realm of the possible, and they are not extreme. Some plans will require the support and active push of our political leaders to make them possible.

In general, the government proposes to raise revenue resources that amount from 15 percent of the GDP in the earlier years of the planning period, rising to around 17 percent of GDP toward the end years.

Government spending is to be held around the 20 percent of GDP level across the years, rising only minimally toward 22 percent of GDP, premised also on an increase in government revenues so as the reduce the fiscal deficit.

The fiscal plan targets the budget deficit to be narrowed down to three percent of GDP by 2028. In 2022 the deficit is high at 7.2 percent of GDP, a result of the height of government measures during the pandemic.

Economic plans are drawn on year-to-year basis. But actual economic developments do not happen exactly as planned. Considerable uncertainties surround the evolution of future developments. The best of plans essentially also include speculations about the future. But they must be anchored on realistic assessments.

The developmental success of countries in the East Asia and ASEAN regions has been built on sound economic policies. A major pillar of such policies was to have an open economy. In practical terms, this meant an aggressive effort to invite foreign direct investments. Also, it meant promoting foreign trade, including active participation in international and regional trading blocs.

These policies enabled them to build large surpluses in their trade and balance of payments. In turn such policies strengthened their economic resource mobilization, building up domestic savings and making possible the achievements of the domestic investments needed to modernize the economy.

Although the Duterte government has passed laws to liberalize the entry of foreign investments, I have argued that more reassuring signaling of the importance of FDI investments to accompany the country’s directions needs to be undertaken by the government.

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