The latest news from the World Bank about our growth prospects isn’t good.
Earlier this year, the international lending agency projected the Philippine economy to grow by 6.9 percent this year and next. That was a pretty rosy beginning for the new Duterte administration. It coincided with the initial announcements about Duterte’s ambitious Build Build Build infrastructure program, as well as his equally ambitious calls for comprehensive tax reform to raise the revenues needed to fund infrastructure.
Since then, however, the bloom has gradually faded off the rose. In its latest prognosis this week, the Bank forecast our growth this year at only 6.6 percent. That is a full 30 basis points drop, and after only half a year. There are still three more months left until year-end for the numbers to go even farther south in the worst case. Clearly we’re taxing the Bank’s expectations.
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The Bank minced no words in blaming “the slower-than-expected pace of government infrastructure projects” for the downgrade in its forecast. That lies squarely at the door of the two main infrastructure agencies, Transportation and Public Works & Highways, and secondarily on other agencies that also build their own infrastructure—Education, Agriculture, Information and Communications Technology, even BCDA, the guys who’re developing the former US bases.
I don’t have any problem with the agency heads. DOTr’s Arthur Tugade is a born salesman who built his own billion-peso business empire around providing logistics services. It should be a cinch for him to shift from moving goods around to moving people around. DPWH’s Villar is another billionaire, albeit soft-spoken, who presumably layered his US-learned MBA skills on top of the business acumen he should have inherited and/or studied from his famous developer-father.
The general suspicion among knowledgeable observers about the cause of this delay implicates the competence and culture of the folks who make up the headcount in these agencies.
My fellow columnist Boo Chanco recounted the response of DOTr’s lawyers to his nagging about their slow pace: “It takes months, months, even YEARS to study these projects!” While over at MMDA, when a congressman brought up the novel suggestion of converting Edsa and C-5 into one-lane highways in opposite directions, the haughty response was: “Let’s not be impulsive. It will take time to study this idea!”
Well, time is a commodity we’re running out of. Not with a President who, at 72, is feeling his mortality and, we’re told, wants nothing more than to retire back to his native Davao, even as he’s single-handedly fending off a gang of destabilizers who’re slinging all sorts of mud at him in order to hasten his retirement.
If someone his age is showing some respect for urgency and the value of time, those of us who’re a lot younger owe it to him to be able to keep up.
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Looking farther ahead, the World Bank also dropped its growth forecast for later years, from 6.9 percent to only 6.7 percent next year, a full 20 basis point drop. This is most likely due as well to the slow pace of infrastructure takeup that’s being expected to continue past the year-end.
But what we hope the newfound pessimism doesn’t reflect is a gloomier outlook for tax reform. After all, with no funds available for government to spend on its ambitious projects, how will government build all that infrastructure needed to spur growth?
Unfortunately, our expectations about taxes are mixed at best. Consider these updates:
The Department of Finance has finally come out with its projected tax take from the heavily slashed Senate version of tax reform. It will be a measly P60 billion, barely enough to finance free tuition in state colleges and universities, let alone build all those highways and railways.
Nonetheless, Senate ways and means committee chairman Senator Sonny Angara insists that his version will raise a lot more than that. Unfortunately, he still has to share with the rest of us how he arrived at his much more optimistic numbers. It’s high time his people got together with the bright young boys and girls at Finance in order to agree on what the hard numbers really look like.
Most recently, we’re hearing scuttlebutt that a number of senators, on both sides of the aisle, are actually contemplating a reduction in the VAT rate, from 12 percent to 10 percent, in exchange for giving up some VAT exemptions and many of their objections to the original tax reform bill. I cannot for the life of me understand how a full 2 point reduction in the VAT rate will be able to improve revenue performance.
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The outlook for tax reform has gotten so gloomy in the Senate that a bunch of former finance secretaries and other senior economic officials in past administrations got together at a recent press conference to issue a common call for greater fiscal responsibility on the issue.
There were Bobby de Ocampo and Romy Bernardo from FVR’s time; Philip Medalla who was Neda head under Erap; and Gary Teves from the Arroyo years. Despite their obvious differences in background and outlook, they clearly thought that the issue of saving tax reform was important enough to jointly raise red flags about.
Former Finance undersecretary Romy put it very well in his own column: Without sufficient tax revenues, either we abandon those projects—thereby stalling our growth—or else we borrow more money to fund them. The deeper we end up going into debt, the more we raise our borrowing costs, impair our access to capital markets, and ultimately endanger the gilt-plated triple-B rating that we worked so hard to earn, first under Arroyo and then under Aquino II.
It’s a stark choice the senators have to make. Let’s hope that, for all the hundreds of millions of pesos they sank into their respective campaigns to get elected, they turn out to be worth it.
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