OF SUBSTANCE AND SPIRIT

It is quite rare that international financial institutions (IFIs) and economic think tanks share a consensus view on the Philippines’ economic prospects. But just recently it looks like there’s unanimity among them that our real GDP growth for the second quarter and for the whole of 2023 could face a possible slowdown. And the legislative agenda may not exactly be helpful in bucking this assessment. There are quite a number of positives, but negatives could have more serious consequences on economic growth. Yes, constructive amendments to the Build Operate Transfer Law could encourage broader participation by the private sector in various infrastructure projects across the archipelago. It is also imperative that the Philippines starts running a Disease Control and Virology Institute. Early detection of health issues could prevent another prolonged economic lockdown. Other proposals are also growth-positive and these include enforcing a National Employment Action Plan and strengthening efforts to curb smuggling. Enhancing internet transactions or E-Commerce Law cannot be more urgent in incentivizing more digital business activities. However, one of the priority bills that could reverse the path of more robust growth is the Maharlika Investment Fund (MIF) bill, now incarnated as Senate Bill No. 6070. This bill could be destabilizing of economic growth. It proposes to divert the funds from the National Budget to financing the Fund. We shall end up with less funds for public infrastructure projects, or social and economic services that are all growth-positive. To compensate, the National Government (NG) would have to either impose higher taxes, or borrow, or do both. Investors are encouraged to increase their exposure to an economy where the prospects of long-term economic growth are more apparent and stable. We need to show a blueprint to undertake structural and policy reforms and the spirit to implement them. That is their metrics for long-term viability. In our case today, our investors are challenged to understand the logic of the MIF. We don’t enjoy surplus funds, but instead we run a large fiscal deficit and a public debt that exceeds 60 percent of our real GDP. They will have a difficult time comprehending how a consolidation of public funds can surpass the individual performance of the BSP, Land Bank, DBP as well as other government financial institutions (GFIs) and government-owned-and-controlled corporations (GOCCs). Most important, preempting the use of dividends of the BSP away from its recapitalization to funding MIF could very well weaken its ability to stabilize inflation and the banking system. That is anti-growth. We hate to see the day when this kind of legislation could imperil the reputationof the Philippine government and the prospects for economic growth. We are all in this together; this is no longer a question of political view or affiliation. Rather, it is putting our heads togetherto avoid mortgaging our own economic future. We need to get a good grip of various drivers of economic growth. In April, the BSP reported that in the first four months of 2023, foreign portfolio investments net outflows were recorded in three months from February-April. Market observers themselves recognized that “elevated inflation and higher interest rates have raised concern about the country’s economic outlook…” Power failure is a long-term growth-negative. With the Malampaya service contract extension for another 15 years, it was reported that we are securing a large portion of power supply in Luzon and will continue to realize revenues from the gas field project. But strong reasons also exist that the Philippine government should take over the service contract once it expires next year. Then all revenues would accrue to the state. All legal issues have to be cleared if we are to sustain our investment roadshows here and abroad. More growth could be sliced off if the broader energy issues in the country including the possible take-over of the National Grid Corporation of the Philippines are not settled soon. Fiscal policy ought to promote fiscal sustainability. IMF Mission Head Shanaka Jay Peiris recently cited the roll-out of the country’s Medium-Term Fiscal Framework. This is growth-positive because the market is assured that we are doing something to reduce our debt-to-GDP ratio and deficit-to-GDP ratio by 2028. Among other things, Congress should focus on all the remaining planned tax and tax administration measures to attain both fiscal and debt sustainability including the rationalization of the pension fund of the military and uniformed personnel. It might be too early to conclude that the unanimity in the growth assessment by the IFIs and think tanks means a slowdown is a certainty this year. But some signs are getting to be more evident. The purchasing managers index  for the Philippines this April recorded an eight-month low. We are lagging behind those of Thailand, Myanmar, and Indonesia. The pipeline of infrastructure flagship projects is no more than a duplication of the Duterte list, according to our friend Romeo Bernardo of Global Source. The institutions that are expected to realize the projects remain weak. Accurate or not, the recent McKinsey & Co. report that Philippine banks are rather slow in adopting digital finance is disturbing. Unless they shape up, the report said, local banks are risking permanent loss of market share to new digital financial services providers. There seems to be a long history of under-investment in digital offerings and information technology. Digital channels comprise a small 5-15 percent of the banks’ revenues against 25 percent average among their ASEAN peers. This is a sad commentary because efficient bank intermediation promotes efficient economic growth. Nothing prevents us from sustaining economic momentum because the challenges are mostly coming from ourselves.  If we succeed, then the unanimity of analysts’ assessment might point to an acceleration, rather thana slowdown, of the tempo of business activities.