President Noynoy Aquino and the Phl economy, 2010-2016

The unexpected demise of former president Benigno Simeon Aquino III at 61 years of age on June 24 has put the nation in grief.

Noynoy carried some reflected glory as the son of two national icons – Ninoy Aquino who had prepared himself for the presidency but was denied it, and Cory Aquino who became the nation’s president from 1986 to 1992.

For his part, Noynoy’s candidacy for president became a call of destiny only in the immediate aftermath of the death of Cory Aquino, whose term had ended two decades before.

The son was a much better-prepared candidate for the post of president than the mother, whose life prior was devoted to family and home. Noynoy had served in elective posts in government, first as congressman and then as senator.

A decent presidency. All leaders will have to yield to the judgment of history when their accomplishments are fully evaluated.

In his time, Noynoy brought the economy forward. I had written a contemporary judgment in this column which was published on Jan. 5, 2016.

What follows next, with minor editing, is an assessment of his presidency as he was about to finish six years of leadership of the nation.

Economic growth. The gross domestic product (GDP) grew by an average of 6.5 percent from 2010 to 2015.

With the population growth rate of around two percent per year during this period, per capita output has grown by 4.5 percent. This is a substantial record of per capita growth for a sustained period in Philippine economic history.

Such record of growth in current years has been outstanding during the same period in East and Southeast Asia which was still reeling from the effects of a world recession. The Philippine performance was a bright spot in a fairly depressed economic world in this decade.

Drivers of growth. The main drivers of growth were led by OFW remittances and earnings from the expanding BPO industries.

OFW remittances have grown from $20 billion in 2010 to almost $30 billion by 2015. BPO earnings have surged and are moving close to the same magnitudes of OFW remittances. Both have strengthened the balance of payments BOP that served to sustain the growth of domestic consumption demand.

The success of BPO service exports has made the country into a leading provider of this service to the international economy. BPO enterprises are high users of labor. They employ many young, skilled university graduates.

Rapid expansion of the BPO sector has fuelled the rise of domestic demand for goods and services of wage earners residing in the country in contrast with Filipino workers living abroad.

These two growth drivers stimulate the economy further through the multiplier process, which simply means the initial expenditures based on incomes derived from them further induce other economic activities to flourish.

Thus, they have caused a rising demand for consumption expenditure. They also stimulated a sustained boom in commercial and housing construction. Evidence of this is the continuous changing face of greater Manila and other major urban centers in the country where BPO centers are established.

These drivers of economic growth are not new. They happened during earlier political administrations. The income base from OFWs has been a growing source of income support for decades now. The BPO industries got started during the presidency of Gloria Macapagal Arroyo.

Aquino’s government continued and further strengthened that trend.

Macro fundamentals. The key macroeconomic relationships worked well together. Fiscal, monetary, and trade payments cooperated to produce a stable economic environment.

Despite the relatively hostile external environment during this period, the drivers of Philippine growth led to a strong BOP position, yielding current payments surpluses that raised national saving.

The monetary authorities harnessed the current payments surpluses (close to five percent of GDP) by holding inflation to a level within the target range of three to five percent per annum. Moreover, they were able to keep interest rate levels sufficiently low to encourage investments.

The central bank strictly kept the banking system at a high level of capital adequacy in conformity with sound banking standards. Hence, the banking system has been kept in a healthy position capable of withstanding any potential financial pressures.

Frugal government spending kept the fiscal deficit to a small level. Though there is a fiscal deficit, the government’s fiscal position has been in “primary surplus” meaning tax revenues were kept ahead of total expenditures net of interest payments for debt. A primary surplus is a good sign. It signals the capacity of the fiscal system to liquidate its debt. Sovereign credit worthiness improved.

In harmony with the robust BOP position, the strong fiscal position enabled the reduction of the debt burden on the economy. Some debt has been prepaid. Overall, the external debt burden on interest has been kept within safe limits.

The tax effort has risen to 15 percent of GDP, thanks to tax reform measures and the improvement of tax administration.

The rise in the tax effort has correspondingly benefited sectors that have suffered from the tight fiscal budget in the past. Because of the low deficit level, there is more fiscal space to maneuver in terms of reallocations to critical sectors of the economy.

One of the major components of improvements has been on public education. The budget for education has risen from P175 billion in 2010 to P364 billion in 2014. This is a substantial rise in the educational budget. Even accounting for inflation, the real rise in the budget is significant

By the same token, the budget for the health sector has improved. In general, an improvement of public budget reallocation has favored the expansion of economic services and the social sectors.

Moreover, the share of public infrastructure investment to GDP has risen from a low level of two percent toward four percent. This low level of public infrastructure spending is one aspect that needs improvement, even though the record has improved recently.

Problems and challenges. Though the overall picture looks bright and promising, still, there are many problems and challenges that await attention.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/