THE Philippine economy is poised to expand faster in the second half of the year backed by the strong and solid macroeconomic fundamentals and the government’s plan of expanding fiscal spending, especially on infrastructure under the ambitious “Build, Build, Build” program.
The Philippines will register the robust expansion despite external threats, such as the lingering tension in the Korean peninsula, uneven growth of advanced economies, imminent interest rates hike by the US Federal Reserve before the close of 2017, and domestic problems including political uncertainty and the peace and order situation in Mindanao.
Economic managers agree that the second-quarter expansion of 6.5 percent, an improvement from the 6.4 percent a quarter ago, showed that the target
range of 6.5 percent to 7.5 percent for the whole year remains realistic. The growth in April-to-June period was primarily driven by the sustained strength of the industry sector and the recovery of the agriculture sector.This brought the first semester GDP growth to 6.4 percent, slightly below the lower limit of the government’s target range of 6.5 to 7.5 percent this year.
The second-quarter growth was, however, slower compared with the 7.1 percent a year ago due to base effects, as spending was relatively robust in the run-up to the presidential elections in May 2016.
Finance Secretary Carlos Dominguez III said the 6.5-percent expansion in the second quarter was a “solid proof” that the government’s “unparalleled” investment strategy anchored on the ‘Build, Build, Build” program has started to pick up steam and was on course to steering the Philippine economy toward a growth path of 6.5 to 7.5 percent for 2017.
Economic Planning Secretary Ernesto Pernia said the GDP target of 6.5 to 7.5 percent this year remained realistic. Pernia said the economy would remain resilient to domestic risks, such as the Marawi conflict in Mindanao, the recent bird flu outbreak in Central Luzon, and even the weaker peso.
On the Marawi issue, Pernia said businesses were brisk in other areas in Mindanao and businessmen remained optimistic, adding that the massive rehabilitation of Marawi City would actually stimulate growth in the region.
Within inflation target
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the second-quarter data confirmed that the economy remained robust and in line with the BSP’s expectations and consistent with the within-target inflation forecast this year.
“The firm economic momentum during the first half of the year alongside favorable business and consumer sentiment should augur well for the expansion of the economy over the near to medium term,” Espenilla said.
He said the BSP would continue to closely monitor economic and financial developments and stood ready to adopt policies to achieve its mandate of preserving price and financial stability.
Higher infra spending
Under its expansionary fiscal policy, the Duterte administration aims to raise infrastructure spending from an equivalent of 5.4 percent of GDP this year to 7.3 percent of GDP by 2022. It has set aside P1.097 trillion in 2018 to support the “Build, Build, Build” program alone, from the adjusted level of P.858.1 billion this year.
Dominguez is confident the Senate would help the government meet the high growth target by passing soon enough—and in full—its own version of the comprehensive tax reform package, which would help spell the financial sustainability of its accelerated spending on infrastructure as well as on human capital formation and social protection for the poor and other vulnerable sectors.
The first package of the Tax Reform for Acceleration and Inclusion Act was already passed in May in the House of Representatives.
ING Bank Manila senior economist Joey Cuyegkeng said the GDP target of 6.5 to 7.5 percent remained within reach as some acceleration of economic activity were expected in the second half of the year of around 6.7 percent to bring a full-year growth of 6.5 percent to 6.6 percent.
He said negative base effects would have faded while household and business spending and investments supported with an acceleration in core government spending would continue to support strong economic activity.
Cuyegkeng added that export recovery would also deliver a more favorable contribution although agriculture might post a moderate growth in the third quarter from the Avian flu episode as supply in provinces which are free of the disease are limited by the Luzon-wide restrictions on the transport of poultry and egg supply.
Among the major economic sectors, industry recorded the fastest growth in the second quarter at 7.3 percent. Services slowed down to 6.1 percent compared with an 8.2 percent growth posted in the same quarter of the previous year. Meanwhile, agriculture recovered with 6.3 percent growth from the 2-percent decline in the previous year.
Flagship projects
Dominguez estimates that around half of the 75 flagship infrastructure projects of the Duterte administration under the ambitious “Build, Build, Build” program can be finished by 2022.
And of the half, he identified a number of major undertakings with portions to be significantly completed before President Rodrigo Duterte steps down from office. Among these are the Clark Airport, Clark to Manila Railway and the Mindanao Railway.
“Number one is the Clark airport that will be finished, a good portion of the Clark to Manila railway will be finished, and the third one will probably be a good portion of the Mindanao railway,” Dominguez told the participants of a forum organized by the Manila Overseas Press Club in Makati City.
“Probably, obviously, not all, like the Subway, can be finished by 2022. Probably half. But the rest will be ongoing, because they are not projects that you can do immediately,” he said.
He estimated that the Metro Manila Subway project alone—which aims to decongest the metropolis of heavy traffic—could “probably take around seven years” to complete, considering its length of around 24,000 meters.
“… The subway will not be finished (in 2022), a digging machine can dig only 10 meters a day, that is a world-class equipment. They are going to employ about 25 (machines)… but the total length (of the project) is 24,000 meters. So that will probably take around seven (years),” Dominguez said.
The National Economic and Development Authority Board recently approved the Metro Manila Subway Project and four new “flagship” projects during their fifth meeting middle of this month.
Neda said this brought the administration’s total number of approved projects to 35 worth ₱1.2 trillion, excluding the cost of the Tawi-Tawi bridges.
The first phase of the subway project, with an estimated initial investment requirement of ₱355.588 billion, will run from Mindanao Avenue in Quezon City to FTI in Taguig and terminate at the Ninoy Aquino International Airport in Parañaque City.
To be financed through Official Development Assistance from Japan, the project will begin construction early next year.
He also said that by November of this year, a year and a month after the Chinese made the commitment, the construction of the two bridges in Pasig River will begin. The Binondo-Intramuros and Estrella-Pantaleon Bridges construction projects of the Public Works Department has a total cost of P5.97 billion.
The Binondo-Intramuros Bridge involves the construction of a new four-lane bridge and viaduct. Meanwhile, the Estrella-Pantaleon Bridge involves the replacement of the existing two-lane bridge with a four-lane bridge and widening of the approach roads.
Construction of the bridges is set to begin fourth quarter this year and end in the fourth quarter of 2020 with grants from the Chinese government.
Dominguez also said that by early next year, the construction of the Chico River irrigation project in Cagayan province and the Kaliwa dam in Quezon will be started.
Dominguez earlier identified the potential Chinese bidders for Chico and Kaliwa projects through a shortlist provided by the Chinese government.
For the Chico river, it is going to be China CAMC Engineering Co. Ltd., China Geo- Engineering Corp., and Qingdao Municipal Construction Group Ltd.
For the Kaliwa dam, bidders will be China Energy Engineering Co. Ltd., China Power Ltd., and a consortium of Guangdong Foreign Construction Co. Ltd. and Guangdong Yuantian Engineering Co. Ltd.
The National Irrigation Administration-Manila Water and Sewerage System are currently conducting their due diligence on the Chinese companies. Dominguez said the firms were subject to laws, rules and regulations.