The Philippine Economy:
Prospects and Challenges
Arsenio M. Balisacan, PhD
National Economic and Development Authority
Economic Briefing and General Membership Meeting
Management Association of the Philippines
Bonifacio Hall, Shangri-la at The Fort
19 August 2022 | 12:50 P.M.
Governor Philip Medalla,
MAP President and my former colleague in the Cabinet Babes Singson,
Governors of the Management Association of the Philippines,
Leaders and members of the private sector,
Friends from the media and civil society,
Ladies and gentlemen,
I would first like to express my gratitude to the Management Association of the Philippines for extending this invitation to me. In the past decade, I have had the opportunity to help design, influence, and implement public policies at the highest level. I consider it a rare privilege to speak in front of leaders and private sector members as we collectively confront significant, but not insurmountable, economic challenges today.
Before I begin, kindly indulge me as I am sure that some or even most of you, being leaders of the private sector, have already heard much of what I am going to share.
First, let me discuss the general macroeconomic picture. As you may already know, our economy recorded a Gross Domestic Product or GDP growth of 7.4% for the second quarter of 2022. This number was slightly below market expectations. However, it is nonetheless welcome news since the economy is coming off a relatively higher base as we recorded a 12.1% GDP growth rate for the comparable quarter in 2021. Before the pandemic, the economy grew at an average rate of about 6.3% in the past decade. Our most recent growth performance puts our first-semester average this year at 7.8%, above the full-year target of 6.5%-7.5%.
It is, therefore, encouraging that rapid growth that is at least at par with our performance in the past decade is returning despite the global headwinds. It is also interesting to note that the country’s economic growth in the past decade is much less correlated with global growth than before, indicating that robust and promising economic activity has driven much of our expansion. As Governor Medalla has also pointed out in a recent forum we attended, it is possible that even with the vagaries of global growth and the disruptions that have occurred in the past decade, the inflows of remittances from overseas Filipinos have helped keep domestic consumption solid and steady.
Indeed, the data confirms this observation. Consumption and investment have been growing considerably fast in the first half. After two years, pent-up demand and fixed capital formation propel the economy forward as face-to-face commercial activities, especially in the services sector, resume. In light of the resumption of on-site learning and the gradual return of tourism activity, we expect these two demand components to remain strong in the near term.
Compared to our major ASEAN neighbors, we currently stand as the best-performing economy for the first semester of this year, outpacing Vietnam, Malaysia, Indonesia, and Thailand. While the IMF and World Bank project slower growth for the Philippines in 2023, we believe we can sustain the momentum.
Domestic and external headwinds pose risks to our high-growth trajectory. The economic team of the Marcos Administration is aware of such risks and is committed to manage them accordingly.
The most pressing of these concerns is, of course, high inflation – especially for food and transportation. This is primarily caused by elevated commodity and input prices as an effect of geopolitical and trade tensions even as the global economy shows signs of recession and slowdown. These concerns are exacerbated by disruptions in our food sector as highly-infectious animal diseases, low production levels in agricultural commodities, and inclement weather disrupt the sector. The tighter fiscal space and limited absorptive capacity of the bureaucracy constrain the government from providing timely and effective assistance to the most vulnerable segments of the population. Of course, the emergence of new COVID-19 variants remains an ever-present threat.
Still, the economic managers remain optimistic. Despite these headwinds, we believe that the headline macroeconomic targets for the medium-term – outlined by the President during his State of the Nation Address – are attainable.
The overall goal from 2023 to 2028 is to reinvigorate job creation and poverty reduction by steering the economy back to its high-growth path.
In particular, we see the private sector playing a significant role in bringing in the necessary investments that will lead to high-quality job creation, increasing the share of wage and salaried workers from 48.0% in 2021 to a range of 53.0%-55.0% by 2028. With the creation of more, better, and more resilient jobs, poverty incidence is seen to be reduced from 18.1% in 2021 to a single-digit level of 9.0% in 2028.
We intend to achieve these targets while adhering to prudent macroeconomic management to ensure that we do not compromise our economy’s fiscal health in the medium and long term. We seek to maintain infrastructure spending at a relatively high level of about 5.0% to 6.0% of our national output until 2028.
To achieve such goals, the 8-Point Socioeconomic Agenda, covering both short-term and medium-term issues, sets the tone for the Administration’s priorities, policies, and programs. We are fleshing out the agenda in the 2023-2028 Philippine Development Plan (PDP), the country’s medium-term development blueprint. This document will assess the critical development issues and identify the strategies and outcomes expected by 2028. In recognition of the urgency of the problems we face today, the President has ordered the National Economic and Development Authority to submit the PDP no later than year-end.
I would like to emphasize key points in the Agenda which are highly relevant to the private sector. As the government looks to improve the purchasing power of Filipinos, relevant government agencies will streamline regulatory processes to ensure the reliable and seamless movement of goods – food in particular. To ensure that we will no longer have to implement costly lockdowns, we will continue vaccination and booster programs and strengthen our surveillance systems to safeguard public health. In education, the return to face-to-face schooling will seek to address the learning losses incurred in the past two years. To avoid leakage and wasting limited funds for social protection, the Philippine Identification System and the National ID will be fully utilized to provide targeted subsidies to the neediest households. The President himself emphasized the need to undertake digitalization of the bureaucracy, as public institutions must evolve with the times and implement measures to improve the ease of doing business for processes such as applying for permits, paying taxes, and obtaining records.
Additionally, to ensure that students qualify for higher-quality jobs, there must be closer coordination with the private sector concerning job facilitation and skills development programs. The proper implementation of the National Competition Policy, the enforcement of pro-competitive regulations, and the reduction of structural barriers to entry will ensure that the playing field for competition is free and fair so that consumers may enjoy lower prices and higher quality of goods and services. Of course, for economic activity to flourish, public order and safety, as well as peace and security must serve as our foundation.
In his SONA, President Marcos identified the legislative priorities of the Executive branch. The economic team notes that many of the recommendations of the private sector coincide with these priorities. Through close coordination with the Legislative, we are committed to the passage of these measures to address the constraints we have identified and improve our economy’s dynamism.
Members of the private sector will also be pleased to know that President Marcos has given his marching orders: the relevant agencies in the Executive shall facilitate more trade opportunities and ensure the proper implementation of our amended economic liberalization laws.
The NEDA is mindful that in an era of interconnected value chains and global disruptions, there is a need for stronger trade partnerships and initiatives aggressively promoting trade diversification, given geopolitical uncertainties. Thus, we support the soonest ratification of the Regional Comprehensive Economic Partnership and are reviewing and improving other trade agreements.
The NEDA has also been obtaining inputs from the relevant agencies to complete the Implementing Rules and Regulations (IRR) of the Public Service Act. We expect to finalize these soon, given that the deadline for the issuance is in October of this year. This Law and the other recently passed game-changing legislative measures – namely, the amended Retail Trade Liberalization Act, the Foreign Investments Act, and the Corporate Recovery and Tax Incentives for Enterprises Act or CREATE Law – will boost the dynamism of the economic landscape. This dynamism should extend to the development of the country’s backbone infrastructure.
This brings me to Public-Private Partnerships (PPPs). As all of you here may relate, the considerable infrastructure backlogs have been one of the most binding constraints that have prevented or discouraged investors from greater participation in our economy, choosing our more dynamic ASEAN neighbors instead. Given our current fiscal constraints, we will use PPPs to harness the private sector’s expertise, resources, and capacity to substantially upgrade the country’s infrastructure.
Even as existing PPP projects are already underway, the Marcos Administration aims to continue the infrastructure push to boost the competitiveness of our domestic industries and encourage more significant investments in critical sectors. To ensure that the benefits of economic growth are inclusive, we will prioritize solicited projects that fit into approved master plans and will connect leading and lagging regions.
Infrastructure in energy, logistics, transportation, telecommunications, and water – the fundamentals of any dynamic economy – will be upgraded and are seen to spur investments in manufacturing, tourism, IT-BPOs, and the creative sectors. We see the growth of these sectors as contributing to high-quality job creation that can provide Filipinos productive employment and contribute to rapid poverty reduction.
As you may have already heard, plans are underway to review the Amended BOT Law IRR to address the issues and concerns raised in various fora that the rules are hindering investors from participating in PPPs. Rest assured that the NEDA, in coordination with other agencies, will carefully consider the inputs of the private sector. We will ensure that PPPs as an economic partnership will sufficiently balance the interests of the public and private sectors. It is worth emphasizing that we recognize this mode of financing as an efficient way of hitting two objectives: (1) prudently managing our limited resources and (2) addressing the yawning infrastructure gap.
You may wonder how the economic team can remain optimistic despite the headwinds we are facing. The data on poverty shows us encouraging signs. Between 2015 and 2018, our country recorded a 6.8-percentage point poverty reduction among our population, from 23.5% to 16.7% – quite fast by our historical standards. High growth, relatively low inflation, and lower inequality as measured by the Gini coefficient accompanied this period. Unfortunately, the COVID-19 pandemic and policy response challenges increased poverty to 18.1% of the population.
Still, this tells us that rapid poverty reduction is possible if we get our economic policies right and our acts together. We aim to reduce poverty by five percentage points by 2025 and another four percentage points by 2028 to hit our target of 9% by the end of the term. Again, this is possible if we collectively address the most binding constraints to our country’s economic transformation.
Thinking long term, sustaining a high-growth trajectory for the next two decades is crucial to the country’s objective of reaching high-income status. The game-changing structural reforms laid down by past administrations serve as strong foundations on which we can build a more dynamic, resilient, and innovative economy that can compete on the global stage.
Before I end, allow me to briefly recapitulate what the NEDA does as the country’s premier socioeconomic planning body. The NEDA coordinates the formulation of policies, plans, and programs at various levels of governance to ensure that these are aligned and contribute to the country’s macroeconomic and development goals.
We provide high-level advice to the President, to policymakers in the Executive Branch, and to Congress to ensure that proposed alternatives and laws are evidence-based and adhere to sound economic principles. The NEDA also reviews, evaluates, and monitors infrastructure projects to ensure that these further the socioeconomic priorities identified.
And so, the private sector can count on NEDA to push and shepherd necessary reforms, and to provide strong guidance on the economic policies that aim to promote sustained and inclusive economic growth in line with the long-term vision.
I end my presentation with this hopeful message: the economic team will certainly do its part in steering the economy through these challenging times.
The government is mindful of the significant role that the private sector plays in increasing productivity, driving innovation, creating job and market opportunities, and addressing the long-standing and emerging issues our country faces.
There is no compelling reason to believe our country cannot reach its long-term ambitions. We can make it happen through robust partnerships between the public and private sectors.
Thank you, and good afternoon to all.