The Market Monitor Minding the Nation's Business
By Luis Leoncio
Had the Aquino administration not scrimped and spent the annual budgets as stipulated in the General Appropriations Act, the economy could have grown from 8 percent to 10 percent, which was what was required to eliminate poverty in the country, according to noted economist Dr. Bernardo M. Villegas.
Citing the chronic underspending under the Aquino administration, the World Bank (WB), in its recent East Asia Pacific Economic Update, lowered its gross domestic product (GDP) growth forecast for the Philippines this year to 5.8 percent from 6.5 percent, and to 6.4 percent next year from 6.5 percent.
The growth forecast for 2017 was also reduced to 6.2 percent from 6.3 percent.
Villegas said it would be up to the next administration to implement the major infrastructure contracts under the public-private partnership (PPP) scheme to maximize the gains in the economy.
“If the next president could get all those projects implemented, the economy will boom,” Villegas said in a forum on vehicles market last week. The necessary ingredients for growth are already in place except for the crucial role of government, he added.
Villegas cited two possibilities for the economy: the good news, and the better news.
The good news, he said, is that whoever will win in the next elections will have enough institutions to help his on her administration grow the economy in the next five to six years.
“There are sources of growth in domestic economy that are not dependent on who occupies Malacañang,” he said.
The better news, Villegas added, is that the next president will have at his disposal billions of dollars of PPP projects that have not yet been implemented to enable the economy to grow up to 10 percent a year.
“It is not impossible for the economy to grow 8 percent to 10 percent; India, Myanmar and Sri Lanka have done that,” he said.
Besides, Villegas said, improvements in the country’s institutions for the past 25 years have made the economy so strong there is no way for it to go but up.
He also said two engines of growth—remittances of overseas Filipino workers (OFWs) and income from the business-process outsourcing (BPO) industry— will continue to have wide multiplier effects on consumption.
OFW remittances are expected to reach $28 billion this year and growing at 3 percent to 5 percent annually. The BPO sector contributed $18 billion last year and is growing 18 percent a year, Villegas said.
The Asean Economic Community, which will be set up this year, is also expected to fuel growth in manufacturing, he added.
Villegas cited the Aquino administration for restoring business trust in the country.
“The most important contribution of the present administration to sustainable economic growth can be found in improved governance and its more determined campaign against corruption,” he said.
He said the biggest challenge to the next administration is to ensure that growth will trickle down to the poorest of the poor.
“This will not happen through market forces alone. There will have to be decisive intervention from the government in building farm-to-market roads, irrigation systems, post-harvest facilities and other infrastructures as well as support services in the countryside to enable the poor farmers and other rural dwellers to earn a decent living,” he said.
The state also has to spend more to improve the quality of primary and secondary education in the rural areas; build more rural health facilities, especially maternity clinics; and make potable water accessible in the countryside.
Villegas said the country’s poverty is fundamentally a rural phenomenon.
“Seventy-five percent of Filipinos who live below the poverty line are in the rural areas. A more realistic approach to agrarian reform must be crafted by the next administration,” he added.
Villegas cited reasons to be optimistic in attaining sustainable and inclusive growth.
“Having attained a critical mass of inclusive political and economic institutions, the country’s primary assets of a growing, young and English-speaking population; its very strategic location in East Asia and its rich natural resources can be made more productive for the benefit of each Filipino,” he said.
“An average of 6.5 percent annual growth rate for the next 18 months could be achieved as domestic consumption is stimulated by both the depreciation of the peso and the election-related spending that is expected to kick off by October 2015 and may last untill June 2016,” he said.
“It is also providential that the last quarter would surely see both OFW remittances growing faster and consumers being encouraged by the Christmas spirit to spend more,” he added.