SONA 2019: Focus on Economy

Such great economic progress  in last 3 years  

   

Manila Bulletin |Editorial

21 July 2019

When President Duterte delivers his State of the Nation Address (SONA) at a joint session of Congress tomorrow, Monday,  it will mark the start of the second half of his administration.  A great deal is expected  in these next three years , especially in the economic  field. The World Bank  sees the Philippines as the fastest growing economy in the Association  of  Southeast Asian Nations (ASEAN) today. It is now  the  13^th  largest economy in Asia, and  projected  to be the 5^th largest  in Asia and 16^th largest  in the world by 2050.

What could be the most significant economic development  for the country in the coming months and years  is  a joint  oil and gas exploration  with China which is expected to  begin this November, according to Energy Secretary Alfonso  Cusi,  chairman of the National Economic and Development Authority (NEDA).

President  Duterte  signed last May 28 Executive Order No. 80  removing a final roadblock to  an oil exploration, development, and production  agreement between the Philippine Exploration Corp. and the China National Offshore Oil Corp.  The  administration  had earlier signed  its first agreement with an Israeli company in 2018  covering a 416,000-hectare area east of Palawan. The  new agreement  with China covers a 720,000-hectare area in Calamian, west of Palawan. Calamian is one of two regions  near Palawan believed  to have considerable oil  resources;  the other is Reed Bank.

The  oil exploration agreement  is only one  area in  the multi-faceted relations  we have developed with China in the last three years. Our  trade with China, including Hong Kong, reached $417 billion this May, making  it the Philippines’ top trading partner. Philippine banana  exports tripled  in the first quarter of 2019 to $160 million.  Philippine  Online Gaming   Operations (POGO)  earned  P24 billion in taxes.  In 2018,  1.2 million Chinese tourists  boosted  the Philippine economy  by P32 billion;  2 million are expected  by 2020, a potential addition of  P50 billion to the economy.

In our ”Build, Build, Build”infrastructure program, China is involved in a big  way, including two donated bridges across the Pasig River, funding for a P500-million   Metro Manila flood-control project now on its second year,  a  P175-billion South Rail Project,  and  an P18.7-billion Kaliwa Dam to boost Metro Manila’s  water supply.

We may have ongoing  disputes in our conflicting claims to certain islands in the South China Sea, particularly in  the 200-mile  Exclusive Economic Zone we have renamed West Philippine Sea, but  President Duterte appears to have the situation well in hand.  He believes  the political  dispute will eventually be settled; in the meantime, he  is determined to see the Philippines benefit from the many  economic programs  that are underway.

The first half of the Duterte administration ends today  with considerable  economic  growth and progress. We look forward  to the second half which, we expect, will be marked with even more  economic  growth, as the President  spells out his plans for the country in the  next  three years in his State of the Nation Address tomorrow.

PH investment Outlook 2019

The Philippines' Investment Outlook for 2019

By ASEAN Briefing | Philippine Information Agency
December 18, 2018

Despite the downside risk of recent inflation in the Philippines, the International Monetary Fund (IMF) projects a 6.6 percent economic growth outlook by 2019. On the other hand, the inflation forecast is estimated to reduce by 4 percent amid a 6.7 percent current inflation rate. The IMF cites a weaker peso, higher excise taxes and rising global oil prices as key inflation drivers.

The World Bank’s Economic Update on the Philippines presents a positive growth direction in terms of sustainability and inclusiveness, notwithstanding the Philippine government’s efforts to tackle domestic risks through careful fiscal management and timely implementation of tax reforms and public investment programs such as the “Build, Build, Build” scheme of the administration of President Rodrigo Duterte. Infrastructure spending is rising year-on-year with 44 out of 75 projects already implemented. Known for his strong political will and decisive leadership, Duterte wants urgent implementation of these projects especially in areas with potential for investing in business.   

Investment Climate

At the end of 2017, the Philippines registered the highest rate of foreign direct investment (FDI) progress in ASEAN.

FDI continued to grow by 42 percent in the first half of 2018 due to increasing investor confidence driven by the country’s sound macroeconomic fundamentals and growth prospects. The Philippine Statistics Authority (PSA) noted a total of approved foreign investments in the second quarter of the same year which amounted to P30.9 billion (US$575.9 million), much higher than the P18.2 billion (US$339.2 million) recorded in 2017. 

FDI inflows continue to surge in the Philippines despite the global FDI decrease which reflects a favorable investment climate. Foreign business leaders also welcome the government’s initiative to encourage corporate establishments in the country.

On October 29, 2018, Duterte signed the Executive Order No. 65 promulgating the 11th Regular Foreign Investment Negative List (FINL). The said order was amended to include five areas for 100 percent foreign investment participation.

The National Economic and Development Authority (NEDA) listed the following investment areas/activities where 100 percent FDI will now be permitted:

• Internet businesses, as excluded from mass media;
• Teaching at higher education levels provided the subject being taught is not a professional subject (i.e., included in a government board or bar examination);
• Training centers that are engaged in short-term high-level skills development that do not form part of the formal education system;
  Adjustment companies, lending companies, financing companies and investment houses; and
• Wellness centers excluded in Item 4 of List B of the FINL.

Opening up to foreign investors and limiting constraints in doing business has become a priority of the Duterte government. Duterte frequently underpinned the importance of amending the 1987 constitution to lift foreign investment restriction in order to cut red tape and further liberalize business practices.

The shift to Federalism also offers a significant outlook for the country’s competitiveness in generating more employment opportunities.

Economy

Information Technology – Internet Service

The Philippines has recently addressed a major industrial policy concern by bringing in a third TELCO player in order to end a duopolistic situation in its telecommunication industry, and allow new players to enter.

The National Telecommunications Commission confirmed Mislatel as the third major telecom player. The consortium is made up of China Telecom, a Chinese state-owned telecommunication company and Udenna Corp and Chelsea Logistics owned by Davao-based tycoon Dennis Uy. 

A third internet provider has long been sought for in the country due to its worsening internet reputation in Asia. Under Duterte, the Philippines has raised the bar for foreign participation. Duterte’s stance is that foreign investment in this area is needed in order to improve the country’s telecom and power sectors, and in turn, boost the economy. With the constitutional amendment on its way, more foreign investors can compete for the service.

While Industry topped the major economic growth sector last year, the Services sector indicated the fastest growth this year at 6.9 percent followed by Industry sector with a growth of 6.2 percent. The country’s current GDP growth stands at 6.1 percent as of November 2018.

Banking & Credit

Based on Moody’s investor service report on the Philippines banking system, the Philippines maintains a Baa2 rating credit outlook with very positive features. Moody predicts that a stable credit growth will continue for the next 12-18 months, noting that cost-effectiveness is improving.

On the other hand, the back-to-back hikes in interest rates are seen in a positive light amid the inflationary pressures and impact of tax reforms (TRAIN Law). The Banko Sentral ng Pilipinas (BSP), the country’s central bank, extended the borrowing rate by 150 basis points to cope up with the inflation and this is expected to elevate until next year.

Meanwhile, the Philippines also noted a substantial decline in the country’s external debt in recent years.

As of June 2018, foreign debt went down by 1.4 percent from the previous year, amounting to US$997 million. BSP attributed this to the de-leveraging of private sector foreign borrowings that minimizes foreign exchange (FX) risk.

Outlook for 2019

Declining poverty and an estimated labor rate of 94.6 percent contribute to the Philippines’ sustainable growth trajectory.

The rising population which is estimated to reach 106.6 million makes the country attractive for foreign investment due to its young, well-educated and dynamic workers.   

The completion of infrastructure development that hinges on public expenditures would strengthen business and consumer spending. However, external factors would continue to pose uncertain risks in the global financial markets.

The World Bank 2018 report projects that average inflation would fall at 3 percent by 2019 – within the BSP ‘s 2-4 percent target range. It also expects the Service sector to become the main driver of economic growth. (Zhorea Shara Garcia/ASEAN Briefing)

PH to be upper miidle income economy

Philippines set to become upper middle-income economy by 2019 


Julito G. Rada
Manila Standard
18 September 2018



The sustained economic growth will enable the Philippines to join the ranks of upper-middle-income economies by 2019, the government’s economic managers said Tuesday.

The economic team said strong macroeconomic fundamentals coupled with massive infrastructure spending by the Duterte administration would keep the economy robust in the face of domestic and external headwinds that threaten to stifle growth.

“The Philippine economy is strong and the growth momentum can be sustained by policy and fiscal reforms implemented by the government,” Finance Secretary Carlos Dominguez III said during the Philippine Economic Briefing held at the Bangko Sentral ng Pilipinas.

“We expect the infrastructure program to hit a stride in the coming months,” Dominguez said.

National Economic and Development Authority director-general Ernesto Pernia said an upward growth trajectory remained possible because the economy was more broad-based now, driven not just by consumption but also investments.

Pernia said the country could become an upper middle-income economy by 2019, adding the government was “more than on track” to meet this target.

“Government spending continues to boost economic activity,” Budget Secretary Benjamin Diokno said.

“Our expansionary fiscal policy is prudent, sustainable, and supportive of development objectives,” he said.

Diokno said with a robust growth target of 7 percent to 8 percent in the next five years, the Philippine economy would be the fastest growing among the top five Asean economies.   He said this would be supported by strong fiscal performance. 

“The revenue effort is projected to increase from 15.7 percent in 2017 to as high as 17.6 percent in 2022,” he said. 

“In nominal terms, revenue collection will rise from close to P2.5 trillion in 2017 to as much as P4.6 trillion in 2022,” Diokno said.

Government spending is expected to surge from just over P2.8 trillion in 2017 to as high as P5.4 trillion in 2022. Diokno said with a strategy to keep the deficit at 3 percent of GDP in 2018 and eventually to 3.2 percent in 2019, the strong momentum in infrastructure spending was poised to be sustained.

Dominguez said the implementation of the first package of the Comprehensive Tax Reform Program would ensure good revenue flows for the government.  The Tax Reform for Acceleration and Inclusion law took effect in January, which cut personal income taxes but raised the excise tax on tobacco, fuel, alcohol, automobile and sweetened beverages.

“The government also is not suffering from deficits and we have a very good credit rating,” Dominguez said. The Philippines currently enjoys investment grade ratings from global debt watchers Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

Dominguez also cited the country’s low indebtedness, high gross international reserves, and high domestic liquidity.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said the economy experienced 78 quarters of uninterrupted growth, although the challenge was how to sustain this momentum.

The economy grew by 6.3 percent in the first half, lower than the expected 7 percent to 8 percent targeted by the country’s economic managers at the start of the year.