Analysts observing the Philippine economy gave balanced reviews on President Rodrigo Duterte’s first year in office, saying that while his administration succeeded in maintaining economic growth, its ability to keep its promises under its 10-point socioeconomic agenda remains to be tested.
Economists from Deutsche Bank and IHS Markit lauded the government in terms of macroeconomic stability but those from IBON Foundation and Philstock.ph expressed disappointment.
Deutsche Bank economist Diana del Rosario and IHS Markit said the Philippines continued to grow at a robust pace within President Duterte’s first year in office.
“Yes, growth has eased, but this is typical post-elections,” she said, referring to the 6.4-percent gross domestic product (GDP) growth in the first quarter of the year, which was lower than the 6.9 percent a year earlier, and from 6.6 percent in the final quarter of 2016.
The government has set a growth target of 6.5 percent to 7.5 percent this year.
“In the coming months, we look forward to the realization of the drive to ramp infrastructure spending and the passage of the first package of the tax reform, both of which could counter recent declines in business sentiment and eventually pave the way for inclusive growth,” she said.
IHS Markit Asia-Pacific Chief Economist Rajiv Biswas said that after one year under the Duterte administration, the Philippine economy continues to perform strongly, maintaining the high growth trajectory recorded since 2012.
“The Duterte Administration has provided stable macroeconomic management and credible policy reforms, allowing the strong growth momentum of the Philippines economy that they inherited to continue,” he said.
Biswas said key positive economic reforms include the implementation of budget measures to boost infrastructure spending and plans to improve the efficiency of the tax system.
“One of the main economic reform thrusts of the Duterte administration’s economic policies is a major push to boost infrastructure spending. The Duterte Administration has announced that it plans to boost infrastructure spending from 5.4 percent of GDP in 2017 to 7.4 percent of GDP by 2022, with total spending of P8.4 trillion on infrastructure planned over the 2017-2022 period,” he noted.
“The Duterte administration is also targeting tax reforms, with the new comprehensive tax reform package aiming to improve the efficiency of the tax system, providing some personal income tax reductions while aiming to increase revenue raised through indirect taxation,” he said, referring to the Comprehensive Tax Reform Program.
Challenges
Biswas said a major medium-term challenge is the high share of the population still living in poverty, with Duterte having given a high priority to social expenditure to try to lower poverty rates during his remaining term in office.
“Among the key challenges for the Duterte Administration over the next five years will be to make the Philippines a more attractive hub for manufacturing investment, in order to make the manufacturing sector an important source of export growth as well as generating more manufacturing sector jobs,” he said.
He pointed out that although foreign direct investment inflows into the Philippines have been gradually improving over the past three years, the level of foreign investment inflows remains low compared with other emerging markets in the Association of Southeast Asian Nations, such as Indonesia and Vietnam.
“Further, economic liberalization to encourage greater foreign investment into the services sector and infrastructure development should be important priorities. Another important industrial development strategy should be to diversify the hubs of regional economic growth away from Manila and encourage more dynamic industrial development in other major cities,” he added.
Disappointed
IBON Foundation said massive unemployment, a weak economic base, anti-development policies, and faltering peace talks signal a worsening socioeconomic crisis.
“The direction of economic policies under the Duterte administration is alarming and in urgent need of correction.
The government’s economic team still uses the anti-development policy framework of past administrations which will mean greater economic distress for the majority of Filipinos,” it said in a review posted on its website.
“The economy’s poor performance since June 2016 is due to the neoliberal policies of previous administrations mostly being continued by the current government,” it said.
The left-leaning think tank said that despite economic growth reported as among the fastest in the world, the Philippine economy actually shed jobs, with the latest data showing that the number of employed Filipinos fell to 40.3 million.
The labor force shrunk by 575,000 in April due to ever-growing numbers of discouraged workers dropping out of the labor force after failing to find jobs, IBON said.
Poor-quality work persisted, it noted, pointing to 11.5 million Filipinos without work or still looking for more work because of the poor quality of jobs.
IBON Foundation also said that economic growth was not happening in the production sectors that could create jobs, raise incomes and can be the basis of local industrialization.
For instance, it said the manufacturing sector’s contribution to the economy has been stagnant while that of the agriculture sector has significantly shrunk to a mere 18 percent by yearend 2016 from more than 40 percent decades ago.
“This shows that Philippine governments have implemented neoliberal policies through the decades in the name of increasing foreign investments to purportedly generate jobs and usher development, but have only succeeded in facilitating growing wealth and profits for the richest few families and biggest corporations at the people’s expense,” it said.
Philstocks.ph senior research analyst Justino Calaycay Jr. expressed doubt on the Duterte administration’s capacity in maintaining macroeconomic policies, including fiscal, monetary and trade policies; instituting progressive tax reform; increasing competitiveness and the ease of doing business and accelerating annual infrastructure spending.
In particular, he questioned the promise of the Duterte administration to cure the underspending of the previous Aquino administration.
“So far, our deficit has ballooned and promised projects have not jumped from the paper it is written on to actual implementation. This has already dampened enthusiasm and tempered the outlook,” he said.
Calaycay also claimed the administration had failed to come up with a concrete trade policy, saying: “The expressed disdain for ‘opportunistic’ American business and capital and an equal ‘administration’ for China has not yet translated to anything tangible except for a wider trade deficit with the latter.”
Slow tax reform
While it is true that there has been an effort to push tax reforms through both houses of Congress, in which the administration holds a “super-majority,” the only achievement so far is the House approval of the Tax Reform for Acceleration and Inclusion bill, the first package of reforms, Calaycay said.
Policies that require legislation such as increasing competitiveness and the ease of doing business, as well as pursuing the relaxation of the constitutional restrictions on foreign ownership in order to attract foreign direct investments, are not progressing.
Moreover, the administration’s promise to accelerate annual infrastructure spending to account for 5 percent of GDP this year, with public-private partnerships playing a key role, remains up in the air.
“Warnings have been raised that government’s failure to ramp up spending as promised, plus the terrorism in Marawi leading to the imposition of martial law in Mindanao, threatens to derail growth from its projected path,” he said.