No Free Lunch

Beyond ‘PiTiK’

My last article dealt on how we have a two-out-of-three batting average on my “PiTiK” test that tracks the essential economic indicators of presyo, trabaho and kita (prices, jobs and incomes), with faster-rising prices being the not-so-good news lately. But other indicators in the economy that the average person probably doesn’t pay much attention to also bear watching, because these ultimately impact on PiTiK, hence the wellbeing of Filipinos in general.

Let’s start with foreign direct investments (FDI), or the investment inflows that actually create jobs, as against those going into portfolio financial investments like stocks or bonds, also called “hot money” because of the ease with which they can be pulled out. Here, there’s both good news and bad news. The good news is that latest data from the Bangko Sentral ng Pilipinas show $1.5 billion in actual FDI inflows in the first two months of this year, a hefty 52.6 percent increase over the comparable figure last year. Of these, new equity placements from overseas, which is the most welcome component, multiplied nearly five times, implying that confidence in the Philippine economy by foreign investors continues to be high.


On the other hand, the Philippine Statistics Authority has just reported that new foreign investments registered with our investment promotion agencies (IPAs) fell by 37.9 percent to P14.2 billion in the first three months of the year. Should we worry? Note that these data reflect intentions rather than actual inflows, and would turn into the latter only within 2-3 years.

Interestingly, even as these data showed significant declines in recent years (-5.5, -31.8 and -10.7 percent in 2013, 2014 and 2016), actual FDI inflows tracked by the BSP had grown consistently from $5.6 billion in 2015 to $8.3 billion in 2016, and on to $10 billion last year.


Why the seeming contradiction? The answer lies in the fact that the IPAs’ data only capture investments that will avail of incentives, even as substantial other investments also come in without them. In the end, what matters are actual FDI inflows, and the data continue to show robust growth. Moreover, data on the sum of domestic and foreign investments continue to show sustained double-digit growth all through the first quarter of this year.

Government finances are also worth watching, as these bear heavily on the stability of the overall economy. Latest data show that the national government deficit (the excess of expenditures over revenues collected) had doubled from P83 billion in the first quarter last year, to P162.2 billion this year. The latter amounts to 4.1 percent of first-quarter GDP, already beyond the 3 percent rule-of-thumb threshold for a sustainable deficit, and reflects government’s aggressive stance on the Build, Build, Build program to “buy” faster economic growth.

It may be of some comfort to know that the United States government is running a deficit that is 10 percent of GDP, on much slower economic growth than ours. But, then again, economic instability in the United States would spell trouble for us as well.

The balance of our foreign exchange inflows vs. outflows shows a worrisome trend: After years of being in surplus, we now have a growing deficit ($2.5 billion in the current account), driven mainly by fast-rising imports in the face of falling exports. This is showing up in the rising foreign exchange rate, which is good news for exporters and families receiving remittances from abroad, but also generally hurts all of us via rising prices. We must strive to further expand exports to fund our fast-growing import bill.

Through all the economic data, what’s most sobering is the comparison with our neighbors. We take pride in being among the fastest-growing economies around, but the fact is, we continue to compare badly with our neighbors in the two other elements of PiTiK: Our inflation and unemployment rates have consistently been nearly twice the average of our neighbors’. Moreover, their exports are growing anywhere from 3.5-25 percent in the past year, while ours have dropped.

The lesson for us ought to be clear: We must keep our eye on the ball, as there’s still a lot of catching up to do.

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TAGS: Cielito F. Habito, FDI, foreign direct investments, incomes, jobs, No Free Lunch, PiTiK, prices
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