The Market Monitor Minding the Nation's Business
By Luis Leoncio
President-elect Duterte is expected to bring in a “populist” administration whose national budget will be targeted for massive infrastructure spending, and which will aim to convert the economy from being consumption-driven to one that is led by exports and investments to generate jobs.
Budget Secretary-designate Benjamin Diokno also said the new government will cut personal and corporate taxes within six months and borrow more to plug the budget deficit.
“I don’t mind borrowing now, because it’s quite cheap; rates now are a lot lower than before,” he said.
“We need to fund and invest in infrastructure and social capital.”
Incoming Socioeconomic Planning Secretary Ernesto Pernia said the Duterte administration’s policy would be to promote exports and investments to generate jobs and contribute to the reduction of poverty.
Macroeconomic policies will favor countryside development, rather than advancing existing business hubs, Pernia said.
Both Diokno and Pernia are professors of economics at the University of the Philippines.
Diokno said he would depart from the underspending of the current administration and instead boost the economy through massive employment of government funds.
He said he would even allow the budget deficit to hit a high level unseen since 2010 to allow for higher infrastructure spending to boost the economy.
A comfortable deficit target would be 3 percent of gross domestic product (GDP), Diokno said in an interview.
He also said he expected 2016’s full-year GDP growth at 6.2 percent, with the economy moderating in the second half, as election-related spending wanes.
“Investors may agree to the wider deficit target as the government plans to use the additional spending for public infrastructure,” Diokno said.
The underspending resulted in small budget deficits during the term of President Aquino that, in turn, resulted in a series of investment grades for the Philippines due to reduced credit risks. But the impact of the underspending on the country’s infrastructure resulted in worse problems, not the least of which was turning away prospective investors.
“We need to rebalance our economy from being consumption-driven to one that is driven by investment and exports,” Pernia said. “Investment and exports generate jobs, not consumption. Of course, we need consumption, too, but there is too much consumption.”
By boosting investments and exports, Pernia said the target of the new administration would be to reduce the share of consumption in the economy to 55 percent from the current 65 percent.
“We are enlarging the pie, so relative shares will change without shrinking the GDP,” Pernia said.
A consumption-led economy that characterized the term of the outgoing administration came largely from the $25 billion that Filipinos working overseas send home every year and the $21 billion in annual earnings from the business process outsourcing (BPO) boom.
Analysts supported the policy thrusts of the Duterte administration laid down by Diokno and Pernia.
“Investors would be willing to look past any potential increase in the deficit depending on the details of the fiscal policy,” Michael Wan, an economist at Credit Suisse Group AG in Singapore, said.
He added a broad overhaul of the tax structure could put more money in the hands of consumers while more spending on infrastructure, education and health would boost growth potential of the country.
In the first quarter, the country’s GDP expanded 6.9 percent, faster than China’s 6.7 percent but was mainly the result of massive election spending.
Pernia, however, said economic growth under Mr. Aquino was “very little, negligible, and insignificant,” adding: “In terms of poverty incidence, the proportion of the population below the poverty line is almost the same.”
The percentage of households living below the poverty line in the first semester of 2015 stood at 26.3 percent, down from 27.9 percent in the same period of 2012.
Pernia added that growth would be dispersed to regions far from the capital Manila.
“I am interested in and giving more attention to other regions,” Pernia said. “There will also be bias toward agriculture and manufacturing.”
Plans are that infrastructure spending would be increased to 5 percent of GDP from the current 3.5 percent, and that the public-private partnership (PPP) program would be reformed to speed up project procurement.