Key factors cited to ease poverty, realize inclusion

CEBU, Philippines - Investments in infrastructure, conditional cash transfer (CCT) and micro-lending are seen to accelerate poverty reduction and realize financial inclusion, according to a recent Department of Finance (DOF) study.

The study, DOF's first major 2017 research paper and led by Finance Undersecretary Gil Beltran, noted that higher remittances from overseas Filipino workers (OFWs) also foster economic inclusion because many of these remitters’ beneficiaries in the country end up lending cash to microenterprises if not becoming micro-entrepreneurs themselves.

The DOF study also batted for reforms in the rice sector that would lead to a more stable and affordable supply because unwarranted spikes in retail prices of this staple, which accounts for a sizable share of the consumer basket of the poor, drive up food inflation that could eventually shove households back to poverty.

Beltran, the agency's chief economist, said that based on an analysis of poverty incidence movements between 1985 and 2013 plus pertinent policy reforms initiated over that 28-year period, the research concluded that gross domestic product (GDP) real growth, wider fiscal space (through higher CCT and infrastructure) and higher microfinance coverage contribute positively to poverty reduction;

It also found out that higher OFW remittances lead to more micro-entrepreneurs and more lending to microenterprises, which contribute to poverty reduction; food inflation worsens poverty; and better food production and reforms in the rice sector are necessary to preserve the gains from rising incomes.

“At higher levels of GDP growth, the economy becomes more inclusive as more families emerge from poverty and acquire bigger shares in the economic pie,” the DOF study said.

“Inclusive development programs are most effective if supplemented by higher microfinance coverage and broader and effectively targeted CCT coverage. These two programs, if implemented effectively, can reduce poverty,” it said.

Moreover, the study also stressed: “Food inflation needs to be tamed to avoid its adverse impact on poverty. High food inflation drives households back to poverty.”

“The rice sector, which accounts for a significant proportion of the consumer basket of the poor, should be reformed to make it contribute more effectively to poverty reduction. Enhancing food supply thru food production and timely importation, if natural disasters destroy the harvest, will go a long way in preserving the gains from good GDP growth and financial inclusion programs.”

Last month, Dominguez and the rest of President Duterte’s economic team held forums on “DuterteNomics,” which is the government’s economic strategy of an aggressive expenditure program — on infrastructure, human capital formation and social protection — to sustain the growth momentum, attract more investments and create enough jobs, drastically reduce the poverty rate and transform the Philippines into an upper middle-income economy by 2022.

The DOF is pushing the congressional approval of its Comprehensive Tax Reform Program (CTRP) that is meant to help raise sufficient funds for this ambitious inclusive-growth strategy anchored on a “Build, Build, Build” program which aims to finally close the country’s yawning infrastructure gap by investing P8 trillion in roads, bridges, railways, airports and other major infra projects over the medium term.

“The continuing drop in poverty incidence is due to a combination of positive economic developments and policy reforms that made economic growth more inclusive,” it said.

It said these developments include the positive economic growth averaging 3.94 percent from 1985 to 2016 (except for negative growth in 1985, 1991 and 1998); wider fiscal space that enabled the government to expand expenditures for infrastructure, health, education and CCTs, which reached 4.3 million poor households in 2016; and the rise in microfinance coverage reaching 11.2 million poor households and micro-insurance access covering 37 million individuals as of end-2016.

An increase of one million families in the number of households covered by the CCT program reduces poverty incidence by 1.47 percent, Beltran said, while every increase of one percentage point in the GDP share of OFW remittances reduces the poverty rate by 0.127 percent to 0.132 percent.

“However, the impact of both microfinance coverage and OFW remittances are not immediate as they are lagged by two years,” Beltran said.

He said that "Regression analysis also confirms that rising food prices erode the impact of policy reforms. A rise in food inflation by a percentage point pushes 0.262 percent to 0.267 percent of families below the poverty index.”

This was most evident in 2010, he said, when rising food prices over the 2008-2010 period slowed down the drop in poverty incidence by 0.8 percentage point.

“OFW remittances are highly correlated with microfinance coverage (0.64 correlation ratio). It is apparent that family members of remitters eventually end up as micro-entrepreneurs and the funds deposited in the banks by remitters boost the level of funds available for micro-lending,” he said. (FREEMAN)