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Philippines
Thursday, March 28, 2024

Duterte comments to undermine PH prospects

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President Rodrigo Duterte’s inflammatory statements and policy changes may undermine the country’s economic prospects, a London-based think tank said in a report over the weekend.

Capital Economics, however, said the president’s wisest move  was to hand over the responsibility for economic management to Finance Secretary Carlos Dominguez, who in turn has pushed through some useful reforms. 

“The finance minister has lived up to his reputation as a safe pair of hands, and has provided some reassurance to investors concerned about Duterte’s controversial domestic policies,” it said.

“Dominguez’s other main achievement has been to stick with the previous government’s plans of raising infrastructure spending. According to the latest budget, spending on infrastructure is set to reach 5.4 percent of GDP [gross domestic product] this year, up from 4.7 percent in 2016,” Capital Economics said.

Capital Economics also cited the government’s proposed comprehensive tax reform program, which aims to raise indirect and corporate taxes while reducing income tax. Finance officials earlier estimated that the reforms would raise 0.9 percent of GDP in extra revenue in 2018.

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Capital Economics noted the passage in May of a law designed to curb tobacco consumption by making it illegal to smoke in public places. Duterte also signed legislation ordering government agencies in the Philippines to offer free contraceptives.

“However, these achievements risk being overshadowed by a string of inflammatory comments and policy changes which have raised concerns in the minds of investors over Duterte’s judgement and commitment to the rule of law,” Capital Economics said.

“The bigger risks are over the medium term. The Philippines’ own history shows how poor leadership and political uncertainty can hold back an economy. One of the key achievements of Duterte’s predecessor, Benigno Aquino, was the restoration of political stability,” it said.

It said military coup attempts and corruption scandals were a common feature of political life in the Philippines for much of the post-war period.

It said improved political stability, coupled with changes to the business environment, helped trigger an acceleration in investment growth and a rise in the country’s low investment rate, “which has been the Achilles heel of the economy for a long time.”

Capital Economics cited some signs that would show the country’s gains are “being put at risk by Duterte.”

“The stock market has underperformed, inflows have dropped, while pledges of foreign direct investment have fallen. If investment starts to slow sharply, medium-term growth prospects will suffer,” it said.

“The upshot is that while we expect growth to hold up well in the short-term, the downside risks to growth are tilted firmly to the downside,” Capital Economics said.

The government expects the economy to grow between 6.5 percent and 7.5 percent this year, driven by higher fiscal spending, robust domestic demand and investment.

First-quarter GDP only managed to grow 6.4 percent, slower than 6.9 a year ago and 6.6 percent in the fourth quarter of 2016. Last year, GDP grew 6.9 percent, one of the fastest in the region.

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