Economic team bills Philippines as next Asian powerhouse

Economic managers made a bold prediction to foreign investors in a Singaporean forum that the Philippines is slated to become Asia’s next economic powerhouse. 

Members of President Duterte’a Cabinet, led by Budget Secretary Benjamin Diokno, Finance Secretary Carlos Dominguez, Socioeconomic Planning Secretary Ernesto Pernia, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr., and Executive Secretary Salvador Medialdea, showcased the promising investment opportunities in the Philippines to a host of business groups and investors during the “Philippine Economic Briefing” held in Singapore on Tuesday, August 15.

Among the private sector representatives in attendance were Jaime Augusto Zobel De Ayala, Chairman and CEO of Ayala Corporation; Ronie Ganguly, portfolio manager of Asian Credit Blackrock Singapore Limited; and George Barcelon, President of the Philippine Chamber of Commerce and Industry.

On the back of sound macroeconomic fundamentals and a robust growth trajectory, the Philippine economy is dubbed as the next economic powerhouse of Asia with GDP growth targeted to increase by seve to eight percent in the medium-term.

Given this rate of economic expansion, the Philippine economy is poised to achieve upper-middle income status by 2022 with per-capita Gross National Income (GNI) of at least $5,000 from $3,550 in 2015.

A major source of optimism for both the public and private sector is the “Build Build Build” Program of the Duterte Administration.

Upgrading infrastructure is seen to boost economic productivity and enhance connectivity that will cut down the cost of doing business.

Hence, the government’s emphasis on public infrastructure will undoubtedly create economic opportunities, attract investments, and generate prosperity for all Filipinos.

The expansionary fiscal policy, highlighted by the increase in the planned deficit from two to three percent of GDP in the medium-term, has made the heavy investments on our spending priorities, particularly infrastructure and human resource development, possible.

“With additional resources at our disposal, we will embark on the most ambitious infrastructure development program in recent Philippine history. We will spend about $170 billion dollars (P8 trillion to P9 trillion) for public infrastructure, rising gradually from 5.4 percent of GDP in 2017 to 7.3 percent of GDP in 2022,” Diokno said.

“The Build Build Build campaign will usher in the Golden Age of Infrastructure in the Philippines, reflected in safe, reliable, convenient and modern infrastructure facilities all over the country,” he added.

Diokno also allayed the fears of investors that the huge funding for government programs and projects will not translate into concrete output. “Underspending seems to be a thing of the past.

Our first half disbursements (in FY 2017) are practically on the dot vis-à-vis the programmed budget.

Last year (2016), underspending has also been narrowed to 3.6 percent from a high of 13.3 and 12.8 percent in 2014 and 2015, respectively. This goes to show that the reforms we’ve implemented are gaining traction,” Diokno said.

In effect, the medium-term fiscal policy and national government spending continue to support an enabling economic environment for investment inflows and robust growth. This only affirms a rosy outlook for the Philippine economy in the years to come.

Dominguez also cited the Philippines’ “rapidly growing” economy to foreign investors, saying the country is itself building its own “Silk Road” by modernizing its infrastructure, harmonizing business policies with its neighbors in the region and streamlining the flow of intraregional investments.

Dominguez also told hundreds of business leaders and key government officials from Asia gathered at this year’s Singapore Regional Business Forum (SRBF) that the Philippines looks forward to strengthening and forging more business partnerships with other countries in the region as it grows its economy within the framework of the ASEAN Economic Community.

“The Philippines is more than ready to be a partner in the robust growth of this region,” Dominguez said.

He said the Philippines’ ambitious infrastructure buildup, which will be supported partly by the proposed tax reform program, would not disrupt the fiscal discipline that has led to the economy’s sustained high growth.

“The tax reform package and infrastructure program combined will spur economic activity without causing an inflationary spike,” with the rate expected to be within the range of 3 to 4 percent over the medium term even without changes in monetary policy, Dominguez said.

According to Dominguez, this infra build-up consists of big-ticket projects of which over one-fourth are in the five regions of the country with the highest poverty rates.

Dominguez said the government is undertaking this unprecedented infra program to sustain the Philippine economy’s rapid pace, attract more long-term investments, create jobs and truly make the benefits of growth inclusive.

“Let me urge you to explore the rising opportunities for business collaboration in our new setting. We have been building our own ‘Silk Road’ in the region as we modernize our infrastructure, bring our information channels to speed and harmonize our policies with those of our neighbors,” Dominguez said at the regional forum.

“I should likewise invite you to explore investment opportunities in the rapidly growing Philippine economy. We are making it easier for intraregional investment flows to happen. The spending program to increase our pace of economic growth opens many opportunities for your enterprises,” he said.

The SRBF was launched in 2015 to serve as a high-profile platform for leaders of business, academe and government in the region to discuss current global economic issues with China’s proposed 21st Maritime Silk Road project as theme.

The “Belt and Road” initiative is China’s development strategy on connectivity and cooperation with countries on the original Silk Road or its ancient trade route through Asia, the Middle East and Europe.

Dominguez said at the forum that the Philippines’ overall goal is to shift from consumption- to investment-led growth as a means to transform the economy into a more inclusive one and reduce the poverty rate to 14 percent by 2022.

He assured the forum participants that the conflict in Marawi City has been contained and will be resolved soon.

“The situation in Marawi City in the island of Mindanao represents the threat posed by extremism everywhere. That situation has been contained and will soon be resolved,” Dominguez said.

“Our government escalated the process of arriving at a political settlement with the Islamic separatist groups in the Philippine south. Measures are being introduced to dramatically reduce the threats posed by radical armed groups. Mindanao is safe for business. The island, after all, is leading our own domestic growth,” he added.

“We are looking to sustain a yearly growth rate in the vicinity of seven percent into the medium term. Our optimism is grounded on a massive infrastructure program undertaken by the present government. This program will have an impressive multiplier effect on the domestic economy. It will create jobs, draw investments and improve efficiency throughout the archipelago,” he said.

To support the infrastructure modernization program and invest more in social services, Dominguez said the government has endorsed for congressional approval a Comprehensive Tax Reform Program (CTRP) that aims to lower personal and corporate income taxes to the regional average while expanding VAT coverage, increasing excise taxes and improving tax administration.

Dominguez said this CTRP will be complemented by significant improvements in tax administration as demonstrated by the recent case of a cigarette manufacturer, from which the government expects to collect a total of $600 million in tax deficiencies.

He said that the cigarette manufacturer, which he did not name in his speech but referred to Mighty Corporation, offered to shut down its operations and settle its liabilities, which will be the largest sum to be collected ever from a single taxpayer in the country’s history, after the government had exposed its fraudulent tax practices.

For the “Build, Build, Build” infrastructure program, Dominguez said the Duterte administration intends to spend P8 trillion or $170 billion between now and 2022 on improving the movement of people and commodities with modern ports and airports, new roads and bridges and mass transport systems in the urban areas.

According to Dominguez, the programmed $23 billion in infrastructure spending for 2018 alone is equivalent 6.3 percent of the projected GDP.

Dominguez said that in the early stages of “Build, Build, Build,” the government will be accessing grants and Official Development Assistance (ODA) loans with about 1 percent less than prevailing interest rates to finance the program.

“As this rolling infra program moves forward, we are looking at increased private sector participation in these projects,” Dominguez said.

He likewise told participants at the forum that “every effort will be exerted to maintain fiscal discipline even as the national government embarks on a massive infra buildup. We expect government debt-to-GDP ratio to continue improving to about 37.7 percent in the medium term.”