Sustaining the state of the economy

The President’s State of the Nation Address is always occasion for assessing the performance of the chief executive and his administration, and always prominent in such assessment is the state of the economy. I like to distill this assessment down to what I have come to call the PiTiK or P-T-K test, standing for presyo (prices), trabaho (jobs) and kita (incomes).  These, according to the popular surveys, are the economic yardsticks that ordinary Filipinos care about most, in that order of importance.  Based on the latest available data, the news is good on all three.  I must say it has been a long while since this has been the case ever since I started taking stock of the economy’s performance in this manner (two out of three had been most common).  The data, which are there for all to examine, speak for themselves.

Price increases have been slowing down.  The inflation rate in June was down further to 2.8 percent, almost half its speed a year ago, and the slowest in the year so far.  It’s also worth pointing out that inflation in food prices this year (2 percent) is much slower than that of nonfood prices (3.5 percent).  This suggests that the relative burden of price increases on the poor, whose budgets are dominated by food, has been relatively lighter than on the nonpoor.  Last year, it was the other way around, when food prices were up 6 percent against nonfood’s 4.5 percent.

The aggregate job picture has likewise been improving. Unemployment rate as of April was 6.9 percent, against last year’s 7.2 percent.  More than a million net new jobs were generated by the economy over the one-year period, exceeding the number of new jobseekers added to the labor force, which averages a million per year.  Over 300,000 of these new jobs came from agriculture, a sign that job creation has been beneficial to the rural areas where the jobs are most needed.  While the National Statistics Office has not indicated how many new jobs came from industry and services, data on manufacturing growth suggest that jobs generation in manufacturing has also been speeding up.  Manufacturing output was up 4.7 and 3.1 percent in value and volume terms respectively as of last May, an improvement over last year’s 4.4 and 2.6 percent, respectively.

Growth in aggregate income, measured as gross domestic product (GDP), had surprised most of us in the first quarter, with the 6.4-percent growth well exceeding most analysts’ expectations and besting last year’s 4.9 percent.  Note, however, that much of this improved growth was due to the services sector, whereas agriculture and industry both saw slower growth compared to last year’s performance.  In the end, though, what matters more is how such growth has translated into new jobs, and as noted above, this has improved in agriculture and likely in manufacturing as well.  Most analysts believe that this growth performance can be sustained through the rest of the year, with business optimism running high and major internal and external drivers of growth looking positive.

Still, one hopes that all this doesn’t lull the government into complacency.  While beyond the aggregate numbers are even more signs of an improving economy, there are persisting weaknesses as well.  I wrote recently of the stark inequalities in our economy, which seem much more magnified here than elsewhere.  There are signs that poverty is declining (with the Social Weather Stations’ poverty and hunger figures having improved in the second quarter), but the richest among us have become far richer.  There is much catching-up to do on infrastructure, wherein we lag behind miserably both relative to our neighbors and to our requirements.  And while government’s revenue collections have been rising, targets are still being missed even with higher-than-expected economic growth.  Both the Bureau of Internal Revenue and Bureau of Customs have yet to show a dramatic departure from historical trends. To be fair, this also requires much better tax compliance especially on the part of our biggest individual and corporate taxpayers.  Many wondered, for example, why some prominent names in the recent Forbes billionaires’ list are nowhere near the top of the list of the country’s top taxpayers.

The legislative agenda must reflect the needed measures to address these persistent weaknesses.  Topping the list of laws the President must push are those that would further strengthen transparency and accountability, with the long languishing Freedom of Information bill being a particular imperative.  This is also critical to his professed crusade against graft and corruption.  Bank secrecy laws also need to be aligned better with international norms, so that these laws can never be used to conceal questionable wealth. Laws that would boost government’s revenue performance, especially the law boosting the so-called “sin taxes” and rationalizing tax incentives, must also receive top priority. I would also hope to see our legislators revive the bill seeking to restructure our revenue agencies to address age-old weaknesses in tax administration.  Key to widening the base of growth of our economy and correcting the highly skewed distribution of income is enactment of a strong competition policy that outlaws unfair trade practices and prevents monopolistic maneuvers by large firms.

Much work remains to be done.  Sustaining our economic uptrend demands that the executive, legislative and judicial branches of the government all row our boat in unison and in the same direction.  We just can’t risk going around in circles again at this time when we seem well poised to surge right ahead.

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