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Business

The next six years for the Philippine economy

Gerardo P. Sicat - The Philippine Star

In six weeks, the nation will elect a new president. The next leader will have the opportunity to guide the nation’s future economic and social directions.

We do not know who the next leader will be. Though there is a strong frontrunner based on the surveys, the voters’ pick will be decided on election day, May 9.

Strong mandate or a tightly contested outcome. In all democratic elections, it will be a good prospect for the nation if the new leader wins with a strong mandate. If the electoral contest turns out to be tightly contested, the winner will still have the opportunity to exercise strong leadership though more obstacles can stand in the way.

Although the pandemic has brought many new problems to the economy. The Russian invasion of Ukraine, which has stoked great geopolitical uncertainties, has complicated the global economy with energy supply issues and further inflation. Continued implementation of programs and projects will naturally keep the new administration occupied. Monitoring and expanding the pipeline of projects comes to mind as a major activity of any new administration, where opportunities for improvements, expansion, and even adjustments will pop up.

The Build Build Build program of infrastructure construction has been endorsed by the major candidates and, therefore, there is no major issue with the existing projects whoever is elected. The main challenges for the future will have to be on new projects and how to prioritize them as the portfolio of projects expand and claims on foreseeable financial resources tighten.

A major issue in the future is the extent to which reliance on private sector participation in public infrastructure projects will be accelerated. In ramping up public infrastructure decisions, the Duterte government relied more on traditional official development assistance. The next administration will have to make efforts to push for more privately financed projects in infrastructure. This means private participation in financing will be leveraged partly on public sector savings.

The expansion of the government expenditure and the strain on public coffers because of the economic downturn caused by the pandemic has led to the downturn of tax revenues, thereby causing a rapid rise of the public debt to GDP ratio.

Prospects of economic recovery could restore government revenues, but there are new demands on spending arising from subsidies to tide over the economic conditions of the poor and those badly impacted by it. The pandemic has caused a universal experience in the deterioration of the government’s fiscal position, so that there is today a shift in tolerance on how big a sustainable fiscal deficit can be.

Recent major economic reforms. During the last year of the Duterte administration, three significant reforms in the area of improving the foreign investment climate were enacted. It is the next president who will implement the new laws.

This achievement is as important as the fiscal and investment reforms that were undertaken during the early years of the Duterte government. It is quite significant to note that the Duterte government, which won the presidency on the strength of his promise to improve peace and order and to put an end to the drug issue facing the nation, has come out more successful in putting in place major economic reforms that have not been accomplished by any recent presidency.

(These reforms are discussed in my Crossroads of Feb. 9, with the title, “The next president will inherit major economic reforms”)

Thus, the new president is in a lucky position to start running the country with a momentous harvest of beneficial possibilities. This is good luck, but it could be made the basis for many more good outcomes if it is followed through by imaginative leadership. By this, I mean that there are many more leadership challenges to be faced in order to harness opportunities and turn them into gold.

Indeed, the new president’s mettle will be tested at every turn, even with this good luck. To begin with, the country’s recovery from the economic downturn as a result of the pandemic is a deadly serious problem. Unemployment is high, poverty has multiplied, human capital growth has been seriously hampered by two years of disturbance of the educational system.

There will be many temptations to seriously hamper the state’s fiscal coffers with unsustainable expenditures on subsidies. On every occasion, full sight of the need to continue investment spending must be balanced with the needs to sustain the health and comfort of the nation’s human resources.

Luckily, on this front, the Duterte administration has also improved the country’s fiscal position through the important tax and investment reforms program that is the essence of the comprehensive programs under the acronyms of TRAIN (Tax Reform for Acceleration and Inclusion) and CREATE (Corporate Recovery and Tax incentives for Enterprises). The country’s fiscal posture is more attuned to the needs of economic growth because of these reforms.

The next step, in my view, is to amend the restrictive constitutional provisions as early as possible. This is to assure that the reforms on the acceleration of the inflows of foreign capital that the country sorely needs are not put in suspense by legal disputes. The amendments of the restrictive constitutional economic provisions were on the cusp of readiness in Congress until some elements of opposition in the Senate derailed the train.

If the next president is elected by a resounding electoral mandate, it will be much easier to overcome the resistance to the final objections being made to what has been, in my view, the original sin of our poor economic performance in the field of economic development since independence.

There are still other a number of major economic reforms that will keep the new president busy. Two important areas are inherently connected, but there is no space to deal with them for now: (1) Speeding up participation in wider regional trade agreements, and (2) labor market reforms.

 

 

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/

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