NextGen Day

The Philippine economy began the first quarter of this year with a boom after maintaining its expansion from the hitch in the third quarter of last year, following the domestic economy’s downturn as a result of the pandemic.

GDP growth from January to March of this year increased by 8.2% over the same period last year after increasing by 7.8% over the prior three months.

The economy has not recorded a negative economic print since falling to a low of -16.9 percent in the second quarter of 2022, however, this represents a turnaround from the -3.8 percent same-period figure in 2021.

To help the economy regain its prior sheen, the government has continued to reopen it.

GDP growth in the first three quarters of this year averaged 7.77 percent, above the government’s full-year growth forecast of 6.5-7.5 percent. Thus, despite the possibility of a recession in the biggest economy in the world, the government decided to maintain its growth projection for this year.

The worst is past for the domestic economy, according to Finance Secretary Benjamin Diokno, who added that “better years are foreseen.”

All things considered, both politically and economically, the Philippines performed admirably in 2022, he claimed.

Last May, the nation had its national elections, with then-candidate for president Ferdinand R. Marcos Jr. dominating his rivals.

Investors’ trust in the nation, which some sectors claim was in doubt prior to the elections, has been credited by economists to the strong mandate that Marcos earned from the people.

According to Diokno, all economic sectors are anticipated to experience robust growth in 2023, with manufacturing and construction leading the way. Manufacturing’s strong recovery is one reason for optimism, while construction will also benefit from the government’s increased infrastructure expenditure.

In October of last year, the manufacturing sector saw a 10.42 percent increase in job creation compared to the same month the previous year, according to Diokno.

According to him, “the increased employment creation is a sign of future growth prospects for the sector.”

After falling to 4.5 percent last October, below the pre-pandemic level of 5.3 percent, employment is another bright light for the economy.

Additionally, the same period’s 14.2 percent underemployment rate is lower than the 14.8 percent in January 2020.

In spite of these causes, inflation continues to be a difficult problem, mostly because of the sharp increases in oil prices on the global market as a result of the impact of the Russia-Ukraine war. Other commodity prices have been impacted by the increases in oil prices.

In recent months, oil prices even climbed to almost USD100 per barrel, but in recent weeks, they have fallen to about USD80 per barrel and lower.

After crossing the government’s intended range of 2-4 percent last April with a 4.9 percent increase, the rate of price increases increased to its new 14-year high of 8 percent last November.

Inflation in the first eleven months of this year was on average 5.6 percent.

According to Diokno, inflation is anticipated to moderate in 2023 and return to within goal ranges by 2024.

In the past, Governor of Bangko Sentral ng Pilipinas (BSP) Felipe Medalla predicted that inflation would peak last month (December), citing the decline in oil prices on the global market.

He claimed that in the second half of 2023, inflation is anticipated to return to within-target levels.

Generally speaking, according to Diokno, oil prices have returned to levels seen before the Russia-Ukraine war, despite concerns about the prospects for global demand due to interruptions in Chinese production, tighter financial conditions globally, and a bleak forecast for global development.

Economic managers reduced their growth projection for the domestic economy in 2023 from 6.5-8 percent to 6-7 percent by taking into account the prognosis for the global economy.

Although it is not the highest growth rate among the ASEAN+6 economies, the average GDP growth of 6.5 percent is nothing to be sniffed at, according to Diokno.

The early adoption of the government’s PHP5.2 trillion 2023 national budget, the adoption of the country’s first-ever Medium-Term Fiscal Framework (MTFF) 2023–28, the approval of the 2023–28 Philippine Development Plan (PDP), the maintenance of the nation’s investment-grade credit ratings, the country’s stable and resilient banking system, adequate external payments position, favorable economic investments, and young, English-speaking, and tech-savvy demographics were some of the factors he cited as contributing to this

“The Philippines’ future is bright as long as the nation remains unified and its political leaders and policymakers continue to prioritize economic progress. According to the trajectory of its expansion, the nation will become one of the top economies in the Asia Pacific area, he continued.

With these developments, Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC), said the domestic economy has returned to its pre-pandemic performance despite the threat of elevated inflation brought on by the ongoing Russia-Ukraine conflict and the anticipated increases in key rates of central banks, among other things.

He claimed that inflows of overseas Filipino workers (OFWs) are at nearly record levels and are continuing to drive up domestic demand, that exports have posted month-to-month records, that manufacturing is near pre-pandemic levels, and that the government is steadfast in its commitment to further raising infrastructure spending.

He also mentioned the business process outsourcing (BPO) industry’s continuous expansion, the extraction of green minerals, and the increased productivity of the industrial, tourist, and agricultural industries.

Ricafort stated that additional fiscal reform measures like the Public Services Act, Retail Trade Liberalization Act, and Foreign Investment Act would significantly reduce the increase in the government’s debt-to-GDP ratio, which rose during the pandemic due to higher funding requirements. The government’s revenue collections have improved.

In the third quarter of this year, the Philippines’ debt-to-GDP ratio went over the 60 percent benchmark internationally. According to Ricafort, this ratio needs to be reduced “to help sustain the country’s relatively favorable credit ratings at 1-3 notches above the minimum investment grade that help support confidence in the country by international investors and creditors.”

More reform initiatives, according to Ricafort, are expected to improve the nation’s job position and support the ongoing economic recovery.

In accordance with the plan to issue US dollar and peso-denominated bonds, which is a component of the government’s program to finance its programs and projects, he is open to the potential of a future increase in the national government’s debt.

He stated that in order to further enhance structural sources of government revenue, the government must “further strengthen tax revenue collections based on existing tax law, come up with new taxes/tax reform initiatives, increase tax rates, among others.”

In order to close the budget shortfall, the government, according to him, must also embrace more disciplined spending practices through fiscal reform initiatives including rightsizing and anti-corruption/anti-leakage/anti-wastage measures.

As he continued, “new taxes and higher tax rates need to be fair, equitable, and progressive, especially targeted to those who can afford them or those from the higher income brackets or, at the very least, prevent adding burden to the poor, most vulnerable sectors, and/or those hit hard by the pandemic.

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