Sustained growth, creditworthiness hinge on tax reform


THE Philippine economy’s sustained growth and creditworthiness hinge largely on the ability of the government to raise more revenues to fund much-needed infrastructure and improve labor productivity, analysts said in an economic briefing on Thursday.

FINEX ECONOMIC BRIEFING Monetary Board member Felipe Medalla (third from right) speaks during the economic briefing of the Financial Executives Institute of the Philippines (Finex) in Makati. Others in the photo are (from left): Makati Business Club Executive Director Peter Perfecto, Asian Development Bank economist Abdul Abiad, COL Financial Group Inc. research head April Lynn Tan, COL Vice President Grace Palma, Medalla, Finex President Benedicta Du-Baladad, and Management Association of the Philippines Governor Romeo Bernardo. PHOTO BY ROGER RAÑADA

At the Financial Executives Institute of the Philippines (Finex) economic briefing in Makati City, Monetary Board member Felipe Medalla said the Philippine economy could sustain 6 percent to 7 percent growth in gross domestic product (GDP), citing a central bank projection on the country’s potential output growth.

“The estimated rate of growth that is consistent with stable inflation is that the Philippine economy can grow 6 percent to 7 percent and not overheat,” the former socioeconomic planning chief and UP economics professor said.

He cautioned however that the ability to sustain growth does not rely completely on having more workers, but on productivity per worker, he said.

Citing BSP data, Medalla said the incremental capital output ratio (ICOR) of the country continues to surpass total factor productivity (TFP).

TFP is the portion of output not explained by the amount of inputs used in production. As such, its level is determined by how efficiently and intensely the inputs are utilized in production.

ICOR is a metric that assesses the marginal amount of investment capital necessary for an entity to generate the next unit of production. A higher ICOR value is not preferred because it indicates that the entity’s production is inefficient.

BSP estimates showed that in 2010 up to the third quarter of 2016, ICOR in the Philippines was higher at 3.5 percent, compared with the 2.3 percent TFP.

To improve labor productivity, improving the country’s infrastructure is necessary, Medalla said.

“A source of optimism is that the government plans to increase infrastructure [spending]as a share of GDP from 5.3 percent right now [2017] to 7.3 percent [by 2022]from the 3.5 percent of the previous administration,” he said.

“The question is can they finance this? And the very key to this is tax reform. If it happens, then we can now say it’s more fun investing in the Philippines,” he said.

COL Financial Group Inc. vice president and head of research April Lynn Tan sees sustained 7 percent to 8 percent GDP growth, which should be driven by higher infrastructure spending and more foreign direct investments.

She noted however that infrastructure spending in Philippines was low compared with other countries in the region.

“I don’t think anybody can say at this point that there is over-investment in terms of infrastructure in the country. And then of course although FDIs have been rising, it fails in comparison to those in other countries. Definitely there is room to spend more on investment in the country,” she said.

Tan shared Medalla’s view that it was important to increase labor productivity and make Filipino workers globally competitive.

“But that is not going to be cheap. That would require a lot of money. Which is why the passage of the Tax Reform for Acceleration and Inclusion Bill is very important,” she said.

Tan said that one of the benefits of the tax reform program is that 93 percent of 5.3 million taxpayers would get 20 percent more take-home pay because of lower personal income tax. “So that is an additional boost to disposable income,” she said.

Tan also said the Philippines could receive a credit rating upgrade if the government would keep its budget deficit in line with its target of 3 percent of GDP.

“If they can do all that without exceeding the deficit target, potentially, we could enjoy a ratings upgrade…it is a possibility when you have faster economic growth. It is something that is more sustainable,” she explained.

“A rating upgrade could mean lower borrowing cost and more investor interest. Again, a virtuous cycle for the Philippines,” Tan said.


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  1. Fitch, Moodys, and S&P 500 are guides, ie. can’t dictate. It’s ultimately up to the lender how much interest on top of loan and how long is the repayment. Duterte Administration (PH Govt) did well to get the loans from China and direct from Chinese Govt (not through banks), the terms given were for AAA+ grade, actually even better than deals Australia gets. It’s like a slap on the face for US because the money they borrowed, ie. bonds bought by China was of BBB- grade lol. PH “pivot” to China alone caused a domino effect to the benefit of Philippines. Japan was in turn pressured to provide even better deals. Actually every other country you probably have noticed or will begin to notice will start competing to invest in PH, hence EU and USA are using other tactics to bully the Duterte Administration, eg. haulting of arms deal and allegations of EJK (don’t feel special they do this with every country to get their way). Unfortunately for EU and USA, Duterte is president and 8/10 popular – bullying won’t work right now in the Philippines.. but if they wait out 6 years, the competition during PH investment boom would’ve already been taken up. Well done Duterte! Political genius as much as I hate to admit it.

  2. Do the Yellow trolls know about Fitch Ratings? If they do, they might as well shut up. Especially when they stated, “Credit watchdog Fitch Ratings affirmed the Philippines’ sovereign credit rating at investment-grade ‘BBB-’ with a positive outlook, an indication of a possible upgrade over next year or two”. Credible credit watchdogs like, Fitch, Moodys, and S &P 500 are like crystal balls that see companies and nations future direction. The problem with all the Yellows, they don’t admit that they are defeated, want an instant return to power, greedy, hypocrites, and liars.

    How I wish the Filipinos are being thought not only in math and science, language, and history, but also, in business and investments in the earliest year of their education. Reason is, part of business and investments are numbers. And, numbers don’t lie. Students education will be completed. They will leave their school knowing what is there for them. They will leave their school to be successful in life and not as to seek for JOBS only. Newly graduates are confused. They thought that JOBS determines success in life.

    Also, when a person knows a good sum of business and investment, he or she will discern a good or a bad person; a fake or a true person and a good or a bad politician, too.