What can derail Philippine economy

The recently announced 2016 second quarter growth of the Philippine economy (GDP) at seven percent had all the economists and business people wide eyed. This economic growth is the highest in Asia and even beat the economic growth of China for the same quarter. This augurs well for the expected growth for the full year and for the growth in 2017.

The election spending that happened in this quarter was probably responsible for the one half percent increment as compared to the previous quarter 6.5 percent growth, but the past six years of the Aquino government did achieve an average annual GDP growth of over six percent. It is also good that the Duterte administration have announced that they will continue and improved on the macroeconomic policies of the previous administration, so that we will maintain the six to seven percent annual economic growth.

In the Cebu Business Club (CBC) Financial Executive (FINEX) economic briefing this month, BSP Deputy Governor Diwa Gunigundo was the main speaker and he was waxing eloquent on his topic, "Resiliency and Confidence in the Philippine Economy." He pointed out that the Philippine economy had achieved 70 quarters of GDP growth which is impressive even if it was lower than six percent in some years. In the last six years particularly, the over six percent growth was achieved while containing inflation below two percent and with a very stable foreign exchange rate. There was fiscal discipline so that the government debt to GDP ratios was going down and is now at 26.5 percent, lower than in most countries including Japan and the US.

Our current account in the Balance of Payments are now in a surplus position which means we now have more savings in the country which will translate to more investments. Our impressive growth record since 1999 up to 2016 (second quarter), shows a resilient economy. This resiliency was brought about by policy and structural reforms, strengthening of institutions, accountability, decoupling of the economy from politics, and the demographic configuration that has happened over the past 16 years.

The new administration with a high public approval could further improve this resiliency and confidence on the Philippine economy. Without doubt and this is the consensus of economists and business people here and abroad, the Philippine economy will continue to grow at this high growth rate. The questions is, "what can derail this high growth rate?"

Even with the economic success of the previous Aquino administration, the issue of the minimal impact of the economic growth on the lower class, with 20 percent still below poverty level, have been a constant criticism. The trickledown effect of the growing economy was inadequate to improve the lives of the poor. There were some improvements but were not enough, especially with the explicit highly visible improvements of the lives of the rich. This is why I was disappointed with the pronouncement of the economic team of Duterte that they expect the economy during the next three years to be growing at the lower end of six percent. This projected growth rate will still be inadequate to improve the lives of the poor even with the enhanced social programs and the expanded Conditional Cash Transfers. We should be targeting a growth rate of eight percent to really have an impact on the poorer sectors of our society, and we should do this in the next 10 years. This will be more than double our per capita income to $7,000 per annum, which will be a per capita of $11,000 at Purchasing Power Parity. This will bring our country to the first rung of a developed economy, and drop the poverty incidence below 15 percent.

The possible external headwinds or snags that could slow down our economic growth are: the weak global economy particularly most of Europe and Great Britain, the slowdown of China's economic growth, and the hike in the US interest rates. The weakening economies of our foreign trading partners affect our export markets and may retard or even contract our already small exports. Our BPOs which are technically exports of services, may alleviate this possibility but we need at least $90 billion of export of goods a year to reach our higher growth target. 

Higher US interest rates will siphon foreign direct (FDI) and portfolio investments to the US as they look for better yields. The OFW remittances would also compensate for these, but will not  be enough as we need the FDIs for long term capital investments.

On the domestic front, the problems that may affect or slow down our economic growth will be in the social and political situation. How the war on drugs and criminality will play out and its impact on the credibility of the President is important. Then there are the peace talks with the NDF and the MILF/MNLF to be resolve to a successful conclusion. The China issue may not be relevant as its conclusion is too far away to be a factor, but managing the information on this could be of peripheral importance.

The Duterte government will need positive factors or early successes to counterbalance the possible domestic and foreign negative developments that will impact on economic growth. These will have to be in the anti-corruption campaign, the streamlining of the bureaucracy, tax reform, infrastructure projects, and traffic solutions.

The last item that could affect our economic growth will be the weather. These are beyond human control but the effects can be managed. Since most of the people at this time want the Duterte administration to succeed, then we should all pray that we do not have the super typhoons and the long dry spells that we had in the earlier years.