The Philippine economy will surely expand this year but the political risk has become more unpredictable. That unpredictability could soon translate into slower economic expansion, or, in layman’s terms, fewer job opportunities and increased unemployment rate.
Moody’s Investors Service, which has given the Philippines a stamp of approval in the past for managing the economy well, has warned that the unpredictability of political risk in the Philippines could negatively affect economic and fiscal reforms and eventually threaten the sustained expansion of the economy.
The credit rating agency noted that President Rodrigo Duterte, since coming to power in June 2016, had clashed with lawmakers over the extrajudicial killings linked to the war on drugs, and sparked controversy when he allowed a hero’s burial for the late President Ferdinand Marcos.
Moody’s acknowledged Duterte’s current high approval ratings, but cautioned that a prolonged focus on political matters could detract attention from economic and fiscal reforms. His aim to pursue a more independent foreign policy that includes ending joint military exercises with the US and closer ties with China is overshadowing more critical economic issues, like increased infrastructure spending and revenue reforms.
The Philippines is also facing headwinds in the global trade. The World Bank early this week reduced its global growth estimate for 2017, saying the uncertainty about the economic policies of US President-elect Donald Trump was clouding the outlook. Trump’s protectionist policies could curb the growth of Philippine exports and dampen investments in the dynamic business process outsourcing sector. Less exports and reduced BPO investments will translate directly into fewer available jobs.
Moody’s is far from downgrading the credit rating of the Philippines given the strong growth momentum. Recent data from the Philippine Economic Zone Authority, however, should not be taken lightly. Investment pledges in ecozones slumped 26 percent in 2016 to P218.2 billion from P295 billion in 2015. The sharp drop followed the uncertainties created by the May presidential elections and Duterte’s outbursts, which have alienated some foreign donors and investors.
The government that includes Duterte should pay equal attention to the infrastructure and revenue challenges facing the Philippines. Higher infrastructure spending and revenue reforms mean more economic and job opportunities. Increased economic activities will eventually give way to a busier labor force that will have little or no time at all to try drugs.