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Economic deliverance

Philippine Economic Growth Forecast

Right on the heels of the Philippines’ credit-rating upgrade by Fitch Ratings – First-rate performance [The Volatilian™, 13 December] – the Asian Development Bank (ADB) has raised its 2017 growth forecast for the country by 0.2 percentage points to 6.7%. This puts the Philippines well ahead of this year’s average growth rate of 5.2% for member states of the Association of Southeast Asian Nations (Asean). Further to that, the ADB raised its Philippine growth forecast for 2018 by 0.1% to 6.8% – while the Asean average was also bumped up by 0.1% to 5.2%.

This, then, is more good economic news for the Philippines with the end of 2017’s fourth quarter just around the corner. What will have helped spur these decisions, no doubt, will have been the economy’s performance in the July to September period when the economy grew by 6.9%.

But also factored into the ADB’s calculations is anticipated greater movement of the government’s ambitious infrastructure build-out, the massive six-year PHP8.5 trillion investment – 2.5 times the entire national budget for this year – that will deliver an integrated network of roads, air and sea ports and springboard the archipelago’s transportation and logistics capabilities into the present era.

Announcing the upward revision of its growth prospects for the Philippines – an update to its 2017 Asian Development Outlook – the ADB said: “This outlook assumes that growth in the government’s infrastructure program will accelerate, supported by improvements in budget execution, with more large investment projects underway”.

Well, that’s certainly the government’s plan. After decades of underinvestment, President Rodrigo Duterte (photo) is hitting this problem head on. This year he committed PHP850 billion to project financing for infrastructure – the equivalent of 5.4% of gross domestic product (GDP); that’s above the World Bank recommendation of 5%.

And it’s been fulfilling that commitment; as the ADB observed, noting: “The government is on track to achieve its target of spending 5.3 percent of GDP on public infrastructure this year”.

Duterte’s Golden Age of Infrastructure shouldn’t be viewed in isolation; as some stand-alone objective. It’s part of a far bigger vision. Its purpose is to usher in the Golden Age of Economic Growth and the Golden Age of National Development. It’s the physical component of Duterte’s elaborate nation-building programme geared to make the Philippines an upper-middle-income economy by 2022, the year his term as president comes to an end.

The other elements are his independent foreign policy – forging a fully functioning sovereign nation that seeks its own direction without hanging onto the coat tails of the United States, as it has in the past – his anti-drugs and criminality campaign aimed at reintroducing law and order into society; his war against the twin communist and Islamist insurgencies that threaten the country’s security; raft loads of reforms, economic, political and social, that aim to deflate a bureaucracy that’s grown fat on delivering skinny services, and tackling protectionism where the few thrive at the expense of the many.

And “to reduce [overall] poverty by 25% in three years”. Over his term, he aims to plunge urban poverty from the 2015 level of 21.6% of the urban population to 14%; and slash it in the rural population from 30% to 20%. And he’ll do it by brining in investment, creating jobs and supporting small enterprises – the formula for his economic deliverance of the poor.

Of course, very little of that can be achieved effectively without a robust economy to support it. But 2017 has seen great strides in that direction and, small though they might seem, the ADB’s 0.1% and 0.2% increases in its forecasts reflect that progress.

For example, Philippine exports, which have increased for the past 11 straight months to November. The government’s growth target here was 5% – it was being overly cautious; year-to-October it had racked up an 11.7% increase with earnings receipts of US$53.11 billion for the 10 months compared to US$47.55 billion for the same period of 2016. Year to November it’s up 12.2%. The ADB has said that these performances factored into to its higher growth estimate.

The services and manufacturing sectors have also been posting gains. In the third quarter, services rose by 7.1% and industry increased by 7.5%, while manufacturing leapt by a whopping 9.4% and kicked in a healthy 2.6% contribution to GDP. Between them, services and manufacturing, provided the biggest boost to GDP.

Meanwhile, large infrastructure projects aside, the boldness of Duterte’s “Build! Build! Build!” programme has injected new life into the construction industry as a whole. In the third quarter, approved building permits generated 36,076 constructions; 35,983 in the second quarter; 35,101 in the first quarter. That’s a total of 107,160 builds in nine months. In 2011, the first full year of the previous administration (January to December) there were 112,881.

None of that happens in a flagging economy – nor does it happen in an economy where there are serious doubts about its direction. Plainly put, these figures are endorsements that the Philippine economy is not just on the right track but is blazing a trail it had once only dreamed of.

Furthermore, according to the latest data from local polling company, Social Weather Stations (SWS), optimism for the economy’s outlook is building in the country. The survey, conducted 23 to 27 September, showed that 43% of Filipino adults believe the general economy will get better next year, against 12% who feel it’ll deteriorate. This signifies a net-optimism score of +30 – three points up from the +27 in June – which SWS classifies as “excellent”.

There are many naysayers out there; others too – Filipinos among them – who would dearly like Duterte’s policies to fail. But the fact is, these figures don’t lie. They’ve not been politicised and they’re instantly verifiable. And they provide the numeric code for the direction which Duterte is taking this economy.

It’s a code that’s easy to read if you block out the static and the background noise that attempt to muffle the facts and blur the picture of an economy that’s getting stronger and more resilient as results come out quarter by quarter. Of course there’ll be set backs from time to time – there are no Utopian economies and the Philippines is as susceptible to shock external threats as anywhere else.

But what it does have is Bangko Sentral ng Pilipinas (BSP), one of the most prudent and most accomplished central bank’s in the world. The modest current-account deficit for this year estimated to be around US$600 million and a manageable 3.2% inflation rate are unlikely to deteriorate on the BSP’s watch – indeed, as far as inflation’s concerned its target is to get it down to 2.5%.

Everyone’s aware of the Philippines’ problems – certainly The Volatilian™ is; and we don’t finesse them. Crime rates, though coming down, are still unacceptably high; poverty levels remain at scandalous levels, the destructive viruses of militant communism and jihadist Islam and the scourge of drugs, again – though finally being robustly addressed – still blight the country, holding the people and the economy to ransom.

On top of that, the country’s a world leader in the child-porn industry – Rape of the innocent –  and below the surface – or beneath the carpet where it had been swept and allowed to germinate and breed – there’s an unspoken potential HIV/AIDS epidemic – Odd numbers of a ticking time bomb. Plus, of course, there’s the abiding corruption in public office which seems to have entered the public-sector DNA, and there are sections of the political class that continue to put blatant self-promotion and self-interest above serving the people they’re supposed to represent.

We know the problems; but we also know that none of them are new. They are all legacy problems which Duterte inherited; and we don’t lay all that at the feet of the last president, Benigno “Noynoy” Aquino, because he inherited them too.

But given all that baggage of trash, it’s even more remarkable what Duterte is achieving with this economy. The serious and costly wars he’s having to fight, with precious little support from members of opposition parties; the scale of inequality and social injustice he’s having to wrestle with – and all accompanied by barrages of vitriolic attacks on his person and his policies by a Liberal-Left media that places its will above the will of the people.

2017 has been a tough year for Duterte and his administration and the chances are that 2018 will be tough also – certainly his opponents will be doing their best to ensure it is. However, they should save their energy; Duterte’s socio-economic agenda will go ahead; his supporters in Congress and his soldiers in the field will fight his battles; the people will continue to pray for him and give thanks for him and the economy will continue to travel higher.