The economy and president in July 2022

The immediate economic reactions days after the presumptive win of BBM in the last election were the sharp drop in the Philippine stock market, weakening peso-dollar exchange rate, a credit rating downgrade, and general business pessimism. And these were after the government touted a 9.3% GDP growth in the 1st quarter of 2022. Stock brokers had actually predicted a stock market downturn if BBM wins, due to the lack of concrete economic plans or direction of his campaign, lack of ability and experience of BBM, the unbelievable amount of money spent to buy alliances/votes, and suspicion on the integrity of the conduct of the election.

The Philippine economy up to April 2022 was continuing its recovery path which started in the third quarter last year, that would put it back to the pre-pandemic level, in growth rate and amount of 2019. The easing of the pandemic and the lockdowns have revived the consumption expenditures which is the man driver of the economy. Agriculture and some service sectors like tourism were still constrained, but the manufacturing index was above 53% and the construction and other services were growing. Our foreign exchange reserves were slightly down, as foreign debts have to be serviced, but OFW remittances and BPO earnings were still increasing

even if foreign direct investments was lower. The government budget deficit was at an all-time high, and the government borrowings to GDP ratio reached the developing country prudent limit of 63%. The Philippine economy up to April was not in the “pink” of health, but it was not yet in the “red” either.

The 9.3% GDP growth in the first quarter of 2022 was partly due to the low base of a minus 3.9% contraction the same quarter in 2021. Nevertheless, with 45 days to go to the inauguration of a new president, the momentum will carry the economy to at least a 6% GDP growth in the second quarter of 2022. The massive monetary liquidity infused in the election, the impetus of the people to go out, to travel, to buy, and to get on with their lives will be the propeller. The Philippines was positioned as the next economic star performer in 2016, after the term of Aquino with the high GDP growth of five years, low fiscal deficit, and moderate borrowings. The Duterte administration’s human rights record and graft and corruption issues were absorbed, but the pandemic response and the massive borrowings devastated the economy in 2020 and 2021.

The major and critical factor that will define and make/unmake the incoming administration is business and investor confidence. They will have to prove their ability to manage the country economically and socio-politically. We have reached the limit of the government and consumption component of the GDP, so we need more investment component, which may only come if there is confidence in the government from both the domestic and foreign investors. The Filipinos are now very polarized because of the way the election was done and the disinformation going on since 2017, and this is also a big hindering factor.

The incoming administration is in for a difficult task and a rough ride with implications for its survival. An economic growth of less than 3% annually will impoverish more Filipinos and bring back our economy and country, as the “sick man of Asia”, a trigger for social unrest. Think of Sri Lanka, Myanmar, Turkey, Venezuela, and Brazil.

‘The incoming administration is in for a difficult task and a rough ride with implications for its survival.’