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Top insights on 2019 economic challenges

"Political stability and economic development are deeply intertwined."

 

High-caliber experts from the government, the academe and the private sector weighed in on what lies ahead for the Philippine economy at the Pilipinas Conference 2018 organized by independent think tank Stratbase Albert del Rosario Institute held recently in Makati.

For starters, it’s a dire picture in terms of the government’s attempt to make economic growth inclusive, said Calixto Chikiamco, president of Foundation for Economic Freedom. The country failed to achieve its target of reducing poverty incidence to 17.2 percent by 2015 and instead hit 21.5 percent. More recently, a Social Weather Stations survey revealed that 13.3 percent, or some 3.1 million families, “experienced involuntary hunger at least once in the past three months.” This is 3.9 points higher than the 9.4 percent recorded the previous quarter and the highest since December 2017, when it hit 15.9 percent.

Some aspects of the macro-economic picture aren’t as rosy either, according to Chikiamco. The country’s Gross Domestic Product growth rate has slowed down due to subpar agriculture and manufacturing numbers. Agricultural productivity is down and while manufacturing expanded by 4 percent in the third quarter of this year, it was a significant increase from the 10.1 percent jump recorded a year ago.

In addition, the usual sources of strength for the economy are being undermined by a wide range of factors. OFW remittances have slowed down due to, among others, the severe government deficit that the Saudi Arabian economy is experiencing, which has affected scores of workers. Once a sunshine industry, the Business Process Outsourcing sector is facing threats from key strides in automation and artificial intelligence, although the development also brings with it some opportunities.

“BPO companies need to upgrade the skills of their call center agents to high-value industries—healthcare information management, software development, and data analytics,” Chikiamco said.

Some of the fundamental weaknesses of the economy remains, if they have not worsened. Imports still outpaced exports in the third quarter of the year, with exports declining by 2.6 percent and imports swelling by 26.1 percent. “Although the country’s dollar reserves are still comfortable, the trend must be reversed, and structural problems must be addressed as well,” he added.

Also, the country’s export base remains to be largely undiversified: a large chunk of it lies in the low value-added electronics sector and its agriculture exports are further affected by slower growth, swelling population, and high food inflation. Meanwhile, the potential of some industries—like the mining sector that can harness the country’s rich mineral reserves—is undermined by unstable government policies.

The reforms necessary to reverse these trends are fundamental in nature, Chikiamco said. These include the removal of constitutional restrictions on foreign investments, the passage of the amendment to the Public Service Act, liberating the rural land market, stabilizing the country’s mining policy, and amending the Labor Code, among others.

The Philippine economy must therefore navigate a “new normal,” said U.P. School of Economics professor Raul Fabella. In particular, the government must closely monitor the manufacturing sector, which is “relatively linked to poverty reduction,” as seen in the recent growth of China and Vietnam.

Unfortunately, while manufacturing grew faster than the service sector during the Aquino administration and up until Duterte’s first year in office, it started to slow down in Duterte’s second year. The clamor to end to contractualization does not bode well for the industry, too, he said.

In line with this, Fabella’s recommendations include staying on track with the Tax Reform for Acceleration and Inclusion Law 1 and not suspending the fuel excise tax increase; passing the second TRAIN package but “with better regard for tradables;” minimizing the uncertainties in political projects, such as sensitive topics like charter change and contractualization; and restoring property rights stability in agriculture.

The position on TRAIN is supported by George Barcelon, Chairman of the Philippine Chamber of Commerce and Industry, in light of the country’s economic story for 2018. On one hand, he highlighted the “strong macroeconomic fundamentals” of the Philippine economy, especially in relation to consumer spending, infrastructure, and capital outlays. June data for Foreign Direct Investments, a perennial problem for the Philippines, actually surpassed targets. On the other hand, while half a million jobs were created in 2018, stubbornly high underemployment is still an issue.

It’s the quality investments that TRAIN would attract, he said, that could address another problem for businesses—high logistic cost, in fact the highest in ASEAN. Barcelon thus lauds the continuing government effort to further ease the act of doing business despite some hiccups in implementation. Lastly, he echoed the need for government to invest in the development of human skills, including the laudable transfer of TESDA to the Department of Trade and Industry toward aligning training with industry needs.

In all these, political stability and economic development are deeply intertwined. And because the reforms necessary to make growth inclusive and sustainable are many, this administration’s still-significant political capital is crucial, said ADRI president Dindo Manhit.

He added: “Our political institutions and mechanisms may have its flaws and shortcomings, but they remain to be vital in driving change and promoting accountability and good governance. While our economic fundamentals are strong, they need to be anchored on solid and effective leadership backed by sound, predictable, and sustainable policies to ensure continuity of growth.”

Topics: Orlando Oxales , 2019 economic challenges , Philippine economy
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