The International Monetary Fund does not seem bothered by the spate of so-called extrajudicial killings in the Philippines.
What is important, according a top economist of the IMF, is the focus on inclusive and robust growth that provides the best environment for opportunities and prosperity for the country’s young and growing population.
At a briefing on April 22, the IMF’s top Asia officials were asked this question by a newsman:
The Philippines is one of the fastest-moving economies in the region. However, external shocks and domestic political noise particularly on the government’s campaign against illegal drugs has resulted to capital outflows and a weak peso. How do you think this would affect the economy going forward and what are your recommendations to preserve the strong growth?
Dr. Kenneth Kang, a deputy director of the IMF’s Asia Pacific department, replied:
“The Philippines as you point out growth in our view is expected to remain robust at around 7 percent in both this year and next year led primarily by domestic demand, but also recovery in exports. Our view is that the stance of policies remains sound. Fiscal policy is appropriate focusing on inclusive growth and promoting social expenditures and infrastructure.
“We also welcome the tax reform proposal which should aim to improve the income tax and VAT systems and create the space needed for the government’s social and developmental needs. Monetary policy is also on track given that inflation remains within the central bank target range.
“So overall we don’t see signs that investors have lost confidence at all. In fact, if anything, investor confidence remains strong as reflected in the positive credit rating outlooks that the Philippines has.
“I can’t comment on the political and security issues. But just to say that when we look across countries in the world, we do find that economic policies that focus on inclusive and robust growth provide the best environment for providing the economic opportunities and prosperities for a young and growing population like in the Philippines.”
President Rodrigo Roa Duterte’s cabinet has just launched what it calls DuterteNomics—the program to ramp up spending for infrastructure up to 7 percent of the Gross Domestic Product by 2022, his sixth year.
“Dutertenomics,” says Budget Secretary Benjamin Diokno, is “having a better, safer, fairer, more beautiful, and more prosperous Philippines.”
NEDA (National Economic and Development Authority) estimates that the unprecedented infrastructure buildup will create 106,824 jobs in 2017; 823,696 jobs in 2018; around 1.12 million in 2019; 1.23 million in 2020; 1.399 million in 2021; and 1.705 million by 2022.
“Dutertenomics” is actually the President’s economic strategy to dramatically raise funds—in large part through his proposed tax reform program—and to spend big on infrastructure, human capital formation, and social protection to sustain the growth momentum, attract investments and create jobs, achieve economic inclusion and transform the Philippines into a high middle-income country by 2022, by which time poverty incidence will have been reduced to 14 percent, from 21.6 percent.
By 2040, the Philippines will become a high-income economy.
Backstopping Dutertenomics are the country’s sound economic fundamentals (expect economic growth of 7 percent per year until 2022), crucial policy reforms (like overhaul of taxes under the CTRP), and political will and efficient implementation.
Duterte is using Tokhang mentality in getting things done on the economic front. He has no choice. Unless he delivers on rice, galunggong and jobs issues, he risks being overthrown and his administration confined to the dustbin of history.
The support of the World Bank and the IMF for his economic policies contrasts with the hostile attitude taken by so-called human rights groups for his vicious war on drugs.
The IMF endorses the Duterte administration’s comprehensive tax reform program (CTRP) as being “net revenue positive with due attention paid to equity.”
The World Bank says CTRP proposals can become “game changers” that could improve transparency, monitoring and efficiency in tax administration, which could in turn further expand the tax base.
Meanwhile, Fitch Ratings has affirmed the Philippines’ investment grade sovereign credit rating at ‘BBB-’ along with a positive outlook on this rating.
Fitch projects economic growth of 6.8 percent this year and 6.7percent in 2018, driven in part by an increased spending on infrastructure.
Infra spending is a record P847.2 billion this year, 5.3 percent of GDP (Gross Domestic Product) or the total value of output of goods and services in a year. From 2017 to 2022, cumulative infra spending could reach P9 trillion.
Fitch noted that “macroeconomic performance has remained strong” and “domestic political stability has been maintained” despite Duterte’s illegal drugs war.
Finance Secretary Carlos Dominguez III says “Fitch Rating’s latest affirmation of its positive outlook on the Philippines only means that the political chatter emanating from certain quarters has failed to dent the country’s sustained-growth narrative resulting from its strong economic performance, continued political stability and aggressive infrastructure and human capital investments under the Duterte presidency.”
Dominguez says that, ‘to maintain broad policy continuity, the Duterte administration will continue to pursue its 10-point socioeconomic agenda on high—and inclusive—growth, with a focus on closing the infrastructure gap, improving the ease of doing business to attract more investments, and attacking poverty by spending big on human capital formation.”
“Given the positive outlook of Fitch Ratings and other institutions,” the DOF points out, “the government has more reason to highlight on the country’s growth story by moving ahead on such policy reforms as its Comprehensive Tax Reform Program to ensure the financial sustainability of its ambitious program to eradicate poverty and transform the Philippines into a high-income economy.
The CTRP aims to do “several things in one blow.”
These include lowering personal income taxes to strengthen the purchasing power of consumers while encouraging investors to come in, and supporting the government’s ambitious program to accelerate spending on infrastructure and social investments, especially in training “a large demographic wave of young Filipinos” to be globally competitive.
The CTRP, Dominguez said, would make sure the government could carry out these goals without endangering the country’s fiscal sustainability.
“In order to achieve our infrastructure goals, our fiscal policy needs to be expansive,” Dominguez says. “While we may accept a certain level of deficits, those must be properly managed. A robust revenue stream will ensure that public borrowing will not spiral out of control.”