PHILIPPINE economic managers remain optimistic about the country’s growth prospects, but told a Congressional hearing Wednesday that they are also wary of global and domestic risks that could potentially hamper sustainable growth.
Presenting the proposed 2015 national budget at the House of Representatives, Socioeconomic Planning Secretary Arsenio Balisacan said the Philippines continues to be one of the fastest growing economies in Asia despite the lower-than-expected 5.7 percent growth in the first quarter of 2014.
Balisacan said prospects in the remaining three quarters of the year are upbeat, but he warned of the risks that continue to threaten to disrupt that momentum.
“Strong macroeconomic fundamentals continued to support growth—characterized by low and stable inflation, stable interest rates, sustainable fiscal conditions and stable financial sector,” Balisacan, who is also the National Economic and Development Authority (NEDA) director-general said.
But he said the government remains on guard against domestic risks from natural disasters, excessive volatility in capital flows, possible spikes in consumer prices, and delays in infrastructure projects; as well as global risks such as the sustainability of the recovery in the euro area, US and Japan, geopolitical tensions in the Middle East and Ukraine, and further economic slowdown in large economies such as China and India.
BSP sees manageable risks
The central bank acknowledged that risks from the external environment such as uncertainty about the monetary policies of advanced economies, economic slowdown in other emerging markets, and geopolitical unrest will have an impact on the Philippine economy.
On the domestic front, natural calamities and possible power outages could take a toll on both growth and domestic prices, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told the same Congress hearing on Wednesday.
The day before, the government reported headline inflation hit a three-year high of 4.9 percent in July, very near the upper limit of the 3 percent to 5 percent inflation target for the year.
“While previous BSP measures are still working their way into the system, liquidity remains ample and rapid bank credit growth will potentially lead to price pressures and financial imbalances, while at the same time supporting the requirements for growth,” Tetangco said.
“However, we believe that policymakers have sufficient policy space to counter these risks. Sufficient and properly allocated fiscal spending and timely implementation of supply-side measures will also help keep prices manageable,” he said.
He reiterated that at this point, the country’s macroeconomic fundamentals remain strong despite the moderated first quarter growth and the upside pressures to domestic inflation.
“[The] underlying narrative of the Philippine economy stays the same. The domestic economy continues to expand above historical average. We also expect inflation to remain within the government target range in 2014, as well as in 2015, supported by well-calibrated monetary policy settings,” he said.
According to government targets, inflation should stay within the 3 percent to 5 percent range for this year, and within 2 percent to 4 percent for 2015.
Abad pitches for higher budget
Addressing the budget allocations for next year, Department of Budget and Management Secretary Florencio Abad said that the proposed P2.606-trillion 2015 budget was specifically designed to fuel economic growth and bring direct and sustainable benefits to all Filipinos.
“The very blueprint of the Aquino administration’s 2015 budget was designed precisely to bring inclusive growth to the country.
We’ve already established some crucial budgetary reforms to make public expenditure more transparent, accountable, and participatory. Those same reforms now allow us to focus our resources better on the people’s most urgent needs, as well as on other initiatives that will catalyze economic growth,” Abad said.
According to Abad, the proposed 2015 budget—which is 15.1 percent higher than the current year’s budget of P2.265 trillion—will respond to the growth demands of the country’s poorest and most disaster-prone provinces.
“The budget proposal hews very closely to the unique requirements of our most impoverished provinces, including those that are regularly in the path of natural calamities. We’re also prepared to make even more dedicated investments into quick-expanding industries that have proven instrumental in fueling the economy,” Abad said.
“When the National Budget gives proper and sufficient support to these high-impact sectors—such as industry and agriculture—we can expect energetic public construction, brisk commercial activity, and even more job opportunities for our growing workforce,” he added.
Meanwhile, Finance Secretary Cesar Purisima said that collections from sin tax would be a major contributor to the next year’s revenue target of P2.337 trillion, which is expected to fund 2015’s appropriations.
Purisima said sin-tax collection from alcohol and cigarette products was seen as a big contributor to overall collection next year. The incremental revenue from sin taxes for 2015 was forecast at P50.63 billion.
Aiming to pump revenues into its universal health care and other programs that directly benefit the public, the Aquino administration signed the Sin Tax Reform Law in December 2012, with the measure taking effect in January 2013.