Part 3
After the “Light and Shadow” presentations of two sectors on the opposite end of post-pandemic recovery, the usual macroeconomic forecast was made by Dr. Victor Abola who gave as usual a well researched outlook for the world, regional and domestic economies. Of greatest interest to the man in the street were the figures on unemployment which increased from 5.1 % last year to 17.1 % during the same period in 2020. Employed persons were down a devastating 8.9 million from January 2020. The global economy is expected to decline by -4.9 percent for the whole of 2020, with advanced economies shrinking by as much as -8.0 percent. Emerging markets to which we belong are expected to
suffer a decline of -3.0 percent with the Philippines doing worse at a range of -7.5 to -9.5 percent (during the second quarter the GDP decline was -16.5 percent). Dr, Abola had good news about our financial strength, which was recently highlighted by a report of The Economist that considered the Philippines among the top ten in financial strength in the world and by an upgrade of triple B+ to A- in credit rating given to us by the Japan Credit Rating Agency. Our economic managers have been very responsible in keeping our debt-to-GDP ratio at a low of 30 to 40 percent so that we can now afford to borrow significant amounts of money to fund the government programs that address the needs of the millions of households who have been impoverished by the pandemic and to subsidize the numerous micro and small and medium scale enterprises that have suffered huge declines in their incomes.
In his macro briefing, Dr. Abola painted an encouraging picture of the Gross International Reserves (GIR) that may reach a record of $100 billion accounting for 8.5 months of imports. Always defending the view that it is better for the Government not to allow the peso to appreciate, he expressed the opinion that the peso may settle at P50 to P51 to a US dollar by the end of 2020. This may be more of a wish than a forecast considering how strong the Philippine peso has been hovering at an average of P48 to $1 from some months now. I do agree with Dr. Abola that it is counterproductive to allow the peso to appreciate, prejudicing millions of households who depend on the dollar remittances of OFWs. A strong peso also does not help our exports to be competitive, including exports of services like the BPO-IT sector.
There is good news on the inflation front. Inflation for the whole year of 2020 could average a low of 2.5 percent. This would encourage our monetary officials to keep interest rate levels also low. Agriculture could still post a positive growth for the entire year, together with services that can grow at a minimal rate of 1 percent. The industry sector will experience the largest drop of -17.5 percent with manufacturing being the worst hit. Going beyond purely macro indicators, Dr. Abola lists the winners during and after the pandemic: agribusiness, telco, IT services, logistics, training and education. I would add health and wellness products and services that are directly related to addressing the COVID-19 challenge.
When it came to my time to integrate what the various speakers covered, I chose to focus on the lasting trends facing the Philippine economy rather than getting distracted with the temporary blips, the most important of which is the ongoing pandemic. To do this, I relied on the very positive assessments issued by independent think tanks and financial institutions in different parts of the world about the long-term prospects of the Philippine economy. Some of these very complimentary long-term forecasts were issued as far back as fifteen to twenty years ago when the Philippines was still notoriously known as the “sick man of Asia.” Others came out just over the last six to twelve months when it has been generally known all over the world that we have a President who has a bad mouth, seems to be mentally challenged and is accused of tolerating extra-judicial killings. In fact, some of these long-term positive forecasts were made during the height of the pandemic when the outside world witnessed the glaring mismanagement of our health sector by incompetent managers, not to mention the rampant corruption among some public health officials. Despite the many challenges our society still faces, these foreign individuals and institutions consider the Philippines as one of the most promising emerging markets, not only in the Indo-Pacific region but also in the whole world because of lasting trends they perceive.
These lasting trends I summarised as follows. The first and most important is the demographic dividend we are still enjoying and will enjoy for at least the next twenty years. We are among the very few countries in the Asia Pacific region that have a young, growing and in our case English-speaking population which gives us a competitive edge in supplying many rapidly ageing developed countries with the human resources they lack through our exporting manpower in the persons of the OFWs and exporting services through our booming BPO-IT sector. This young and growing population, which at present is already at a level of 110 million and expanding by an annual rate of 1.6 percent, is also the largest engine of growth since domestic consumption accounts for more than 70 percent of our GDP. Another lasting trend is our being at the epicentre of the most dynamic economic region in the world for the next twenty years, the Indo-Pacific region in which countries have not been inflicted with the economic disease of ultra-nationalism and anti-trade policies like the “America First” policy of President Trump or the Brexit of the UK. In fact, we are considered as one of the most promising members of the ASEAN Economic Community (together with Vietnam and Indonesia) that is trying replicate the good points of the European Economic Community in achieving the free flow of goods, services, capital and investment for mutual development. Then there is the temporal dividend: the present young generation have been born at the right time when the Philippines is transitioning from a low-middle income status to an upper-middle income one, which following Engel’s Law, will result in an explosion of the demand for all types of non-basic consumer goods and services which make up a highly industrialized economy.
These lasting trends have been complemented by our achievements in institution building over the last twenty years. We have managed to strengthen our institutions and build up a large talent pool in the area of monetary and fiscal management, the main reason why financial institutions and think tanks abroad give us high rankings in financial strength. We have one of the best central banking systems among emerging markets and our fiscal managers have exercised utmost restraint over at least the last decade or so, keeping our fiscal deficit below the prudent 3 percent of GDP and our debt-to-GDP ratio at a very comfortable 30 to 40 percent. We have a large pool of young and talented economists and bankers who can always take over from the present monetary and fiscal managers to continue sustaining our financial strength. With the Build, Build, Build program we are addressing our handicap of inadequate infrastructures. There is still much to do to improve our agricultural productivity and address the problem of corruption and poor governance. Independent institutions abroad, however, see that we have enough strengths to counteract our weaknesses so that over the long run, they consider us as winning the economic marathon even if we will fail miserably in the one hundred meter dash. For comments, my email address is [email protected]