The country’s strong macroeconomic fundamentals enabled it to weather both domestic and global headwinds, including the onslaught of the COVID-19 pandemic, Finance Undersecretary and chief economist Gil Beltran said over the weekend.
Beltran said in an economic bulletin that vital reforms implemented by the government in the aftermath of the Asian financial crisis helped significantly offset the impact of the succeeding crises.
He said these reforms included the expanded value added tax and increase in the rate to 12 percent in 2006, the increase and indexation of sin taxes in 2014 and the increase and indexation of petroleum taxes in 2017, the lowering of individual income under the TRAIN (Tax Reform for Acceleration and Innovation law in 2017 and corporate income tax rates and the rationalization of fiscal incentives under the CREATE law in 2020.
Other reforms are the liberalization of the energy sector through market-oriented petroleum pricing and private investment in electricity sector; shift to inflation targeting in 2002; phased liberalization of foreign exchange transactions including import payments and outward investments; adherence to international norms in banking supervision under Basel 1, Basel 2 and Basel 3 to reduce banking risks; and reforms in the agriculture sector, including tariffication of quantitative restriction in rice in 2019 and other agricultural products before that.
“Economic reforms have transformed the Philippines to a more efficient, competitive and resilient economy,” Beltran said.
He said the GDP growth accelerated, averaging 6.6 percent five years before the COVID crisis compared to an 70-year average growth of 4.6 percent since 1950.
Inflation rate and interest rate were at their lowest levels, implying stable internal and external position. Inflation averaged 2.76 percent from 2105 to 2019 while nominal lending rates averaged 6.05 percent.
The external debt ratio dropped its lowest in 2015-2019 at 23.19 percent of GDP, the general government debt ratio at 34.65 percent and the national government debt ratio at 39.6 percent.
Beltran said the balance of payments position was steady from 2015 to 2019 with the gross international reserves rising to 8.2 months of imports of goods and services. During the crisis, in 2020, the BOP surplus swelled to 4 percent of GDP, further boosting GIR to 10.2 months of imports of goods and services.
“This is due to confidence by the market that the Philippines will recover lost ground when the lockdowns are taken down,” Beltran said.
“The country is best able to hurdle external and internal shocks by maintaining strong macroeconomic fundamentals…,” he said.
Beltran said that unlike the previous two crises”•the 1980s debt crisis and Asian financial crisis”•the COVID-19 pandemic started out as a health crisis that blew up to an economic crisis.
To prevent the spread of the virus, the whole world implemented lockdowns that caused a severe economic contraction and adopted spending programs to curb the virus and push the consolidated public sector deficit to expand to an estimated 6.5 percent of GDP.
Public sector debt rose to 47.48 percent of GDP in 2020 from an average 34.65 percent during the 5-year pre-crisis period.
Unlike in previous crises when the BOP was unstable, the Philippine peso appreciated by 4.1 percent in 2020 and the BOP surplus surged to 4.4 percent of GDP.
Nominal lending interest rates remained at single digit level, dropping slightly to 6.0 percent. This is due to liquidity infusion by the Bangko Sentral ng Pilipinas through purchases of Treasury securities and lowering of reserve requirement.
Despite continued low inflation and interest rates, the lack of mobility arising from strict lockdowns caused a 9.6-percent GDP contraction in 2020, its lowest in the postwar period.
Economic managers remained optimistic of an economic rebound this year, with GDP expected to grow between 6 percent and 7 percent mainly on the back of continuing strong macroeconomic fundamentals aided by the rollout of COVID vaccination program.