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DoF chief: Strong Q3 growth meets inclusivity

By Luis Leoncio

The targeted inclusive growth rate is now a reality for the Philippines after the 6.9 expansion in the gross domestic product in the third quarter as the Duterte administration further ramps up spending on infrastructure and human capital development to supercharge the economy and move closer to financial inclusion, Finance Secretary Carlos Dominguez III said.

The government is targeting gross domestic product (GDP) growth of 6.5 percent to 7.5 percent this year and seven to eight percent from 2018 to 2022.

The sustained growth rate will reduced poverty incidence from 21.6 percent in 2015 to 14 recent by 2022.

“Notwithstanding the continued political noise and the terrorist activity in Marawi, which President Duterte had decisively addressed, the economy managed to perform well in the third quarter as the government posted a double-digit increase in public investments and pursued initiatives to further improve fiscal health and boost investor sentiment,” Dominguez said.

Last Thursday, the Philippine Statistics Authority (PSA) reported the 6.9 percent economic expansion for the July to September period.

“Expect a more riveting growth narrative in the fourth quarter and onwards as the Duterte administration shifts to higher gear its unparalleled investment and stimulus program on the strength of the government’s greater absorptive capacity and its resolve to advance its ‘Build, Build, Build’ infra program as the main driver of the economy,” he said.

Dominguez expressed confidence that the domestic economy is on track to meet the official full-year expansion target of 6.5 to 7.5 percent as the government accelerates spending on infrastructure, which has the highest multiplier effect on growth, and on human capital formation, which is essential to achieving economic inclusion for all Filipinos.

He assured the public that “Malacañang would be able to maintain fiscal discipline despite the escalated public spending on the Duterte watch owing to its commitment to provide a steady revenue stream for its P8.4-trillion ‘Build, Build, Build’ program through Official Development Assistance (ODA) packages and the Tax Reform for Acceleration and Inclusion Act (TRAIN) bill, which the Congress is expected to pass this fourth quarter.”

“There are such positive benchmarks as the record Gross International Reserve (GIR) level, manageable debt service and formidable earnings from the OFW (overseas Filipino workers) and BPO (business process outsourcing) sectors that would likewise help the government sustain its economic stimulus plan into the medium term,” he added.

Socioeconomic Planning Secretary Ernesto Pernia said the third quarter gross domestic product (GDP) performance was higher than the forecasts by economists of a 6.5 to 6.7 percent growth.

Compared to other Asian countries, the Philippines remains one of the region’s best performing economies, second to Vietnam which reported a 7.5 percent growth in the third quarter, and higher than China’s 6.8 percent and Indonesia’s 5.1 percent for the same period.

Dominguez said the country is well on its way to attaining an investment-led economy in the face of the dramatic rise in foreign direct investment (FDI) inflows to $1.203 billion as of August, or 70 percent higher than the $708 million in the same month last year.

He said the positive investor sentiment is illustrated by two major investments in recent months, namely, the $1 billion investment by Japan Tobacco International (JTI) in acquiring the assets of cigarette manufacturer Mighty Corp., and the $1.3-billion deal between the Philippines’ Energy Development Corporation (EDC) and a consortium of foreign investors backed by Macquarie Infrastructure and Real Assets (MIRA) and Arran Investment Pte. Ltd., which is an affiliate of Singaporean sovereign wealth fund GIC.

According to the PSA, the economy grew by 6.9 percent in the third quarter, compared to 6.7 percent in the second quarter (revised upward from 6.5 percent) and 7.0 percent in the same period last year.

On the expenditure side, the PSA attributed the 6.9 percent growth during the July-September 2017 period to “household final consumption expenditure, durable equipment, net exports, and government final consumption expenditure.”

The services sector contributed the highest to the third quarter GDP growth with 4.2 percentage points, followed by industry with 2.5 percentage points and agriculture with 0.2 percentage points.

Department of Budget and Management (DBM) data showed that national government disbursements went up 13.9 percent year-on-year last August to P201.6 billion, with Infrastructure and Other Capital expenditures surging 18.1 percent to P40.1 billion during that month.

Meanwhile, Bangko Sentral ng Pilipinas (BSP) data showed that the GIR hit $80.62 billion as of end-October, OFW remittances coursed through banks totaled $18.6 billion over the January-August period, and BPO revenues are projected to reach $24.5 billion this year.

As for debt payments, the Bureau of the Treasury said the debt service bill was P582.2 billion in the nine months to September, or 16.27 percent lower than the P696.19 billion over the same nine-month period last year.

Among the major economic sectors, Industry recorded the fastest growth of 7.5 percent in the third quarter followed by services with a 7.1 percent growth. Meanwhile, agriculture slowed down by 2.5 percent from a three percent growth in the previous year.

Net Primary Income from the Rest of the World (NPI) grew by 5.7 percent compared with the 4.1 percent growth recorded in the same quarter of the previous year. As a result, Gross National Income (GNI) posted a growth of 6.7 percent.

With the country’s projected population reaching 104.9 million in the third quarter of 2017, per capita GDP grew by 5.4 percent. Meanwhile, per capita GNI and per capita Household Final Consumption Expenditure grew by 5.2 percent and 3.0 percent, respectively.

“We attribute the country’s growth performance to sustained strong growth in exports and improvements in public spending, which then boosted the manufacturing subsector and the services sector,” Pernia added.

Public consumption was up 8.3 percent on account of higher spending on personnel services with the raise in the base pay of civilian government employees and allowances of the military and uniformed personnel, as well as the filling-up and creation of positions at the Department of Education. This is in line with the government’s commitment to dependable and timely delivery of public services.

“We are now seeing a sustained improvement in government spending in a run-up to our massive infrastructure program which will continually unfold in the months ahead.

This is expected to ramp up public spending even further. We see construction activities and public spending making a headway in line with the government’s aim to spend 5.3 percent of GDP this year for infrastructure and up to 7.4 percent by 2022,” Pernia added.

Private consumer spending, on the other hand, eased to 4.5 percent in the third quarter. But we expect a pick-up in household consumption in the last quarter of the year due to the holiday season.

“So, imagine if both public and private spending are both on a roll. We are likely to see the economy steadily going on an upward trajectory,” he added.

Apart from this, the government is working towards reforming the tax system as we expect the Tax Reform for Acceleration and Inclusion Act or TRAIN, to be implemented as soon as it is enacted into law, he said.

“This seeks to create a tax system that is simpler, fairer and more efficient. The take-home pay of millions of Filipinos will increase while we adjust the excise taxes on certain products to generate income for the government. This tax reform package will fund about half of the government’s infrastructure program while providing relief to lower- and middle-income earners,” he added.

“The end of the conflict in Marawi City last month is also a highly welcome development. The reconstruction efforts to follow in the coming months will help the people to get back on their feet and provide a boost to the local economy of Marawi and Mindanao in general,” he added.

The improvement in government spending can also be reflected by the higher utilization of cash allocation by the line agencies, according to Budget Secretary Benjamin Diokno.

In the third quarter, cash utilization ratio registered at 95.2 percent suggesting that government agencies were able to spend the cash allocations released to them. This rate is also better than the 92.9 percent utilization ratio in the third quarter of last year.

“It is welcome news that 3rd Quarter economic expansion fell within the government’s target, especially after an election year,” Diokno said.

“In the past, economic growth usually takes a deep nosedive after an election year,” he added. “This is not the case anymore owing to our sound macroeconomic fundamentals and economic policies,” he said.

He noted that the third quarter GDP growth in 2004 (an election year) reached 6.1percent before dropping to 4.2 percent the following year.

In 2010 (also an election year), GDP grew by 7.3 percent in the third quarter before plummeting to 3.1 percent the following year. For this year, the variance is minimal with GDP growth registering 7.1 percent in the third quarter of last year versus 6.9 percent this year.

“Our outlook on the Philippine economy remains bright,” Diokno said.

“Rest assured that your government will not let up in its efforts to accelerate growth and secure a more comfortable life for all,” Diokno added.

“The Department of Budget and Management is also committed to firm up government disbursements as we aim for our full-year P2.909 trillion disbursement target,” he said.

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