Overpromising on the economy
It took just a little over a year before the credibility of the President’s economic team was sacrificed to feed a feel-good propaganda machine. That’s too bad. In these difficult economic times, credible economists advising the President is a must. Unfortunately, even the President didn’t think much of them as he ignored them when he made his rice price cap order.
But I am not surprised. Sunshine Ben overdid his record of hopeless optimism during the Duterte regime. He coined Build Build Build and was so gung-ho about the infrastructure building promises, ignoring the bureaucracy’s inability to deliver on time, or at all.
Now, he proudly says our economy was the fastest growing in the region, which may seem to be the case if we disregard base effects. Even with our best numbers, we are just catching up from the negative growth rates of the last few years. He and the economic team have been going around the world promising an economic growth rate of six to seven percent this year.
Then, the second quarter produced a moderate growth rate of 4.3 percent from the 6.4 percent expansion in the first quarter. This brings our real GDP growth to 5.3 percent for the first semester of the year. According to NEDA Secretary Arsi Balisacan, we need to grow by 6.6 percent in the second semester to achieve the year’s six to seven percent growth target.
Both Diokno and Balisacan insist this year’s economic growth target is within reach, citing the government’s aggressive “catch-up” plans.
What makes them think they will do any better the rest of the year given the confused management we are seeing so far?
UK-based think tank Pantheon Macroeconomics said the country’s GDP growth likely slowed further to 1.8 percent in the third quarter from 4.3 percent in the second quarter.
“As things stand, we expect the Q3 GDP report to show that the economy contracted by a further 0.2 percent quarter-on-quarter, following Q2’s surprise 0.9 percent decline,” Pantheon Macroeconomics economists said in a report.
“Really bad news is likely to come sooner rather than later, with our rate forecast predicated on the view that the Philippines is already in the middle of a shallow technical recession,” the economists said.
ING Bank lead economist Nicholas Mapa said the Dutch financial giant further lowered its gross domestic product (GDP) growth forecast for the Philippines to 4.8 percent from the original target of five percent for this year.
Economist Romy Bernardo, newly appointed member of the Monetary Board, wrote in his column before he took his oath of office that there are rather strong headwinds that may make it difficult to achieve the growth target of Diokno and Balisacan.
Adding to the downside risks our economy faces are higher oil and commodity prices, specially rice in the international market. The President’s first year in office had been marked by shortages and sky-high retail prices of many food items, including sugar, onions, chicken, and the most political of all, rice. Our agricultural sector is hardly growing and has consistently been unable to grow enough of the food our growing population needs.
As for infrastructure, there has been no major PPP project award. The privatization of NAIA’s management is supposedly being fast-tracked, but it is still something we have to see to believe.
Bernardo: “There is also the absence of any obvious new growth drivers to complement two old reliables, OFW remittances and BPO earnings, whose future growth is challenged by an already high base compared to decades ago. Generative AI also poses a medium-term threat to BPO, especially for routine work, unless we can rapidly upskill our workers.”
Bernardo also cited the view of another respected economist: “Anton Periquet is even forecasting medium term growth of 4.5 percent, ‘a return to GMA-era trajectory where foreign investment was absent and fiscal constraints prevailed.’”
There are worrisome implications on fiscal sustainability in a low medium term growth scenario, say of under five percent, Bernardo warned. “This can fuel a downward spiral of low revenues, high budget deficits, high interest rates, low public capex spending, thus even lower GDP, and potentially an expansive public debt-to-GDP ratio that makes us vulnerable to risks from financial shocks. Prof. Medalla even flagged the risk of a ‘perfect storm if perception of the Philippine government as a borrower were to go back to what it used to be.’”
Then there is rice. The President rejected the reduction of tariff on rice imports in the probably mistaken belief there will be sufficient local harvests and the international price of rice is going down. So, for the meantime, we have a depleted rice stockpile at NFA. The President is taking a very big risk and exposing the country to a full-blown rice crisis.
Indonesia is prudently going the other way. They have made large importations of rice over the first eight months this year to replenish stockpiles. Indonesia imported 1.59 million tons of rice this year compared to just 237,146 tons imported same period last year. Indonesia plans to import 2.3 million tons of rice this year to blunt the impact of El Niño.
In our case, with a milling efficiency of 65 percent, we will theoretically have a rice inventory of around 6.5 MTs to seven million MTs. Since we consume 35,000 MTs of rice per day, average monthly consumption is around 1,050,000 MTs. This means the predicted rice inventory will be sufficient for around six months, a former DA usec wrote.
“The latter part of December till end of February is the lean harvest season, coinciding with the dry planting season. Hence, there will be little supply of rice during that period as harvest starts in late February till April. The effect of El Niño might be severe during late December and the first quarter of next year and cause our palay (unhusked rice) production to dip during the first semester of next year.”
The prudent stance for the administration is to plan for the worst… do not overpromise because there are so many imponderables that could happen. Be honest with potential problems. A feel-good story today may not be sustainable. Worse, over optimism can result in a crisis that is a threat to political stability.