Economic Development Cluster Press Statement
January 30, 2020; 5:00 PM
Podium Floor, Department of Finance
Fellow workers in government;
Friends in the media;
Ladies and gentlemen;
The Economic Development Cluster of President Rodrigo Roa Duterte’s Cabinet met earlier today to review the country’s economic performance in 2019 and forge a strategy for reaching our GDP growth target of 6.5 to 7.5 percent this year and into the medium term.
As we all know, the main reason for the anemic GDP growth during the first semester of 2019 was the five-month congressional delay in the passage of the national budget. Compounded with the ban on new infrastructure projects during the election period, the delay stymied our growth through the entire first half of last year.
Nevertheless, the aggressive catch-up investment plan formulated by this cabinet cluster in May 2019 and implemented during the 2nd semester of last year resulted in growth rates of 6.0 and 6.4 percent in the third and fourth quarters of 2019, respectively.
In addition, the full-year inflation rate for 2019 settled at two-and-a-half percent, well within our target range of 2-4 percent. This has provided enough headroom for expansionary monetary policies.
Our estimates suggest that the delay in the passage of last year’s budget took out nearly a full percentage point from our growth rate. Had the budget been passed on schedule, our full-year GDP growth rate last year should have been around 6.8 percent. Clearly, a budget delayed is development delayed.
The challenge at hand is to maintain the momentum of rapid growth that we were able to recover.
Sources of GDP Growth in 2020
With the enactment of the 2020 national budget on time and the extension of the validity of certain portions of the 2019 budget until the year-end, we expect public spending to spur robust economic activity this year.
The substantially higher government spending on infrastructure and social services, stronger domestic consumption unimpeded by benign inflation, and a revitalized agricultural sector are expected to be major growth drivers in 2020.
We also expect the reduced costs of doing business and the streamlining of procedures as a result of the implementation of the Ease of Doing Business Law, as well as the upcoming passage of the Corporate Income Tax and Incentives Rationalization Act or CITIRA bill, to encourage more investments. The full implementation of the Philippine Export Development Plan and a more aggressive tourism campaign will further rev up the economy this year.
Risks to Growth
The government remains vigilant and well-positioned to address the domestic and external risks that can push down the economic growth trajectory over the medium-term.
On the domestic front, risks could emanate from natural hazards such as threats posed by the possible eruption of the Taal Volcano, the continued presence of the African Swine Fever in the country, water supply disruptions, slow implementation of the infrastructure projects, and policy uncertainties such as the delay in the passage of our tax reform packages.
Beyond 2020, in light of the implementation of the Supreme Court ruling on the Mandanas Case, the low absorptive capacity of the local government units to carry out devolved functions may pose a risk to growth. Currently, discussions are still ongoing on how to carry out the transition plan and identify the functions to be devolved to the LGUs.
Externally, the primary downside risks include the slowdown in global growth, a lackluster recovery in trade, protectionist policies and other disruptions to the trade and supply chains, the volatility in global oil prices, disruptive technologies, and the global spread of communicable diseases such as the novel coronavirus.
The EDC has identified some of the strategies that we need to put forward in order for the country to reach its growth target.
We urge our main infrastructure agencies to accelerate the implementation of their priority projects and efficiently disburse their bigger outlays for better absorptive capacity.
The agriculture sector, on the other hand, has to grow at least 2 percent annually to support our higher growth target. We are urging the Department of Agriculture to effectively implement the programs and projects under the Rice Competitiveness Enhancement Fund or RCEF.
To manage, contain and control the spread of African Swine Fever, we need to strictly enforce biosecurity measures and set up more stringent quarantine checkpoints, provide more disinfection facilities, and intensify our anti-smuggling and meat inspection efforts.
To support the growth of the services sector, we need to pursue the re-skilling of our workforce in the IT-BPM sector and other labor-intensive manufacturing sectors to leverage technological advancements in frontier technologies.
Moving forward, we also need to incorporate digital trade in updating our electronic commerce roadmap, speed up the entry of a third telecommunications player, and adopt a new regulatory framework or approach, as needed, to assess and address issues relating to emerging technologies such as Angkas, Grab, Airbnb, among others.
We likewise need to support the growth of exports by fully implementing the National Single Window/TradeNet System and its integration into the ASEAN Single Window, and pursuing strategic trade partnerships, maximizing opportunities in bilateral, regional and global integration.
Along with these, we need to intensify the marketing and promotion of Philippine goods and services, increase market intelligence, and identify specific products for which the country could be an alternative manufacturing base, bearing in mind the comparative advantage of our domestic players.
To attract more investment opportunities, it is a must to fully implement the Ease of Doing Business Act, undertake a regulatory impact assessment of all existing regulations to ensure that these do not pose additional burdens to the business environment, push for the passage of the CITIRA bill as well as the amendments to the Foreign Investments Act, Public Service Act, and Retail Trade Liberalization Act.
Finally, we need to strengthen efforts and fully synchronize planning, investment programming, budgeting and implementation of programs and projects within the government.
Overall, the Duterte administration remains optimistic over our growth prospects this year and beyond. We are fully committed to put in place the necessary reforms and strategies to ensure that the economy continues to grow rapidly and more inclusively over the medium term.