Nearly all multilateral lending agencies have lowered their growth projections for the Philippine economy for this year. While this signals some headwinds, the country is nowhere near an economic recession.
In fact, even with the lower growth forecasts, the Philippines will remain among the fastest-growing economies in the region this year and next. But the lowered forecasts do need looking into for their assessment of the running of the Philippine economy.
Last week, the International Monetary Fund (IMF) slashed by half a percentage point to 6 percent its growth forecast for the Philippines for this year, citing the adverse effects of the delayed implementation of the 2019 national budget and weak exports due to the trade war between the United States and China.
The IMF actually lowered its 2019 growth outlook for Asean-5, which groups the Philippines, Indonesia, Malaysia, Thailand and Vietnam, to 5 percent from 5.1 percent, and the global economic expansion to 3.2 percent from 3.6 percent last year and 3.8 percent in 2017, because of lingering US-China trade tensions.
Only last April, the IMF cut its 2019 growth forecast for the Philippines to 6.5 percent from 6.6 percent due to less rosy global economic prospects, although it projected growth next year at a slightly faster 6.6 percent.
Other multilateral lenders such as the Washington-based World Bank and the Manila-headquartered Asian Development Bank (ADB) earlier cut their 2019 growth forecasts for the Philippines because of the impasse in Congress on the 2019 national budget, the prolonged dry spell due to El Niño and a slowing external demand that affects Philippine exports.
The ADB cut to 6.2 percent its 2019 growth forecast for the Philippines mainly due to government underspending of P1 billion a day on public goods and services during the start of the year, as the government operated using the reenacted 2018 appropriations.
This dragged first-quarter economic expansion to a four-year low of 5.6 percent. President Duterte signed the P3.7-trillion 2019 budget only on April 15, as the two houses of Congress had earlier fought over “pork” funds.
The delayed passage of the national budget caused public construction to shrink by 8.6 percent (although this was an improvement from the 11.8-percent contraction in the fourth quarter of 2018), and growth in government consumption to slow to 7.4 percent in the first quarter from 12.6 percent in the fourth quarter of 2018.
The regional economic surveillance organization Asean+3 Macroeconomic and Research Office also cut its 2019 and 2020 growth forecasts for the Philippines to 6.3 percent and 6.5 percent, respectively, due to gloomier global growth prospects and the sharp slowdown of the Philippine economy in the first quarter of 2019.
Last April, the World Bank lowered its 2019 growth forecast for the Philippines to 6.4 percent, for the same reason: the government’s reenacted budget in the first quarter, coupled with the dry spell due to El Niño.
What, then, should the government do? First, it would do well not to be distracted by these forecasts. Instead, it should double its efforts to push infrastructure projects under the “Build, build, build” program to make up for lost time because of the 2019 budget impasse.
Mr. Duterte must also rally his supporters in Congress, which make up the majority, to pass the administration’s remaining tax reform packages. Legislators must be reminded that they cannot choose to approve popular tax reforms like the amnesty or corporate tax reduction measures, and junk unpopular ones like the higher taxes on “sin products” and the scrapping of unnecessary tax incentives for businesses.
Keeping the government’s fiscal condition in good health will also help ensure that inflation will be low to support consumer spending, which has remained the major factor that sustains the country’s economic growth. The continued easing of interest rates by monetary authorities should also benefit the economy, as the cost of loans for business expansion or house purchases gets lower.
The lower economic growth projections from multilateral lending agencies are a reminder that political missteps impacting the economy had been made and that some tough times lie ahead, and that the administration, hopefully learning from such oversights, needs to ensure that the country is better prepared for the next round of challenges.