Sustaining growth

"The government is the richest and largest corporation in the Philippines."


Bangko Setral ng Pilipinas Governor Benjamin E. Diokno had a rather bullish speech at the Rotary Club of Manila meeting last June 6.

Economic growth as measured by the rate of increase in the Gross Domestic Product or the output of goods and services in a given period has slackened, with the GDP rate falling from a high of 7.6 percent in 2010 to 6.9 percent in 2016,6.7 percent in 2017, and 6.2 percent in 2018. And to 5.7 percent in the first quarter of 2019.

The sharp decline in growth rate to 5.7 percent in January-March 2019 has been blamed on the delayed approval of the P3.7-trillion national budget.

To me, the reasons for the drop are more fundamental than simple legislative red tape.

One reason I suspect is that a huge chunk of government money is being stolen by government bureaucrats who deny its use by the population and the economy.

The government today contributes close to 20 percent of economic production. But that 20 percent is only part of the story. It represents money being actually spent or invested by government, not only for payroll, not only for maintenance and operating expenses, but also for buying machinery and equipment and in building infrastructure.

When government fails to buy equipment or build infrastructure, the economy and the people suffer. A classic example is the incompetent NAIA management.

In August last year, a Chinese jet crash-landed at the airport. NAIA had no tow truck or forklift to remove the paralyzed jet away from the runway. So flights were canceled for three days. My estimate of the cost of the closure: P5 billion.

Last Sunday, lightning or fear of lightning gripped NAIA. So the airport was closed for a few hours and scores of flights were diverted, delayed or prevented from taking off and landing. Why? NAIA has no equipment to deflect lightning. Can you believe that? President Duterte was so furious he rushed to the airport himself in the middle of the night. He found the terminals a total mess. He was kind, though. Nobody was fired—yet. He apologized to the NAIA customers—the airline passengers.

It is not for lack of money that NAIA could not buy a forklift for planes or a lightning deflector. The government is the richest and largest corporation in the Philippines. The budget for a forklift or a lightning should be petty cash.

So here now is BSP Governor Ben Diokno:

“While the Q1 2019 growth of the Philippine economy of 5.6 percent was short of our target of 6 percent to 7 percent, it remains one of the highest in the region and perhaps the world. This performance was achieved notwithstanding the delay in the approval of the 2019 national budget which held back the implementation of key programs and projects.

“The Philippine economy should have grown by at least one percentage point higher, at 6.6 percent to 7.2 percent in the first quarter, had the 2019 fiscal program been approved on time.

“The government has crafted a ‘catch-up’ plan to make up for the lower-than-planned state spending in the first quarter. And the consensus is that we will hit our target of 6 percent-7 percent growth this year.

“On the supply side, economic activity was boosted mainly by the services sectors’ robust performance.

“Meanwhile, the strong expansion in both investments and consumer spending also supported growth on the demand side. With the sustained 81 consecutive quarters (spanning more than two decades from 1999 to 2019) of uninterrupted growth, we remain optimistic that the Philippine economy can sustain its growth momentum over the medium term.

“The World Bank is sticking to 6.4 percent growth this year for our country, not far from the NEDA’s target for 2019: a GDP growth target range of 6 percent—7 percent for 2019, 6.5 percent—7.5 percent in 2020, and 7 percent—8 percent from 2021 to 2022.

“In addition, the strength of the Philippine economy was further validated with the upgrade in our sovereign credit rating by Standard & Poor’s to BBB+ with a stable outlook.

“This is the highest-letter grade for the foreign currency and an improvement from the BBB grade for the local currency rating. At the same time, Fitch—another rating agency—recently affirmed the Philippines’ investment BBB rating, also with a stable outlook.

“Recent demand indicators continue to point to overall firm domestic growth prospects in the near term. Results of the Q1 2019 survey-based consumer and business sentiment showed an improved outlook. The consumer outlook index registered an all-time largest quarter-on-quarter increase since the start of the nationwide survey in Q1 2007.

“At the same time, the confidence index for business showed marked improvement after declining for four consecutive quarters.

“With the end of the 2019 budget impasse, the continued implementation of the government’s infrastructure program—which we fondly call “Build, Build, Build”—is envisioned to generate an “impressive multiplier effect” on the economy by increasing its productive capacity, creating jobs, raising incomes, and enhancing the investment climate in the country.

“Price pressures have gone down significantly, falling toward the midpoint (at 3 percent in April 2019) of the target band. This brought the year-to-date (January – April) average to 3.6 percent year-on-year for 2019. This is firmly within the government’s 2-4 percent target range.”

My take:

During the open forum, Diokno revealed one big news—he is going to reduce the reserve requirement for bank deposits, from double digits, to single digit, probably in three years.

Reserves (about 18 percent of total deposits) is idle money parked by banks with the central bank. They amount to at least a trillion pesos. Imagine if that money were released to the system. It could be used to buy badly needed equipment—like the forklift and lightning arrestors at NAIA.

Or speed up traffic from Makati to Cubao from two hours at present to—five minutes, promised by Duterte by December. He did not specify the year.

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Topics: Bangko Setral ng Pilipinas , Benjamin Diokno , Gross Domestic Product ,

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