Perceived flip-flop and optimistic targets

During a press briefing over the weekend, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan announced the finalization of the latest Philippine Development Plan (PDP) covering 2023 up to 2028, the last year of the current administration.

To be presented early next year, the unveiling of the six-year plan somehow signals the end of pandemic blues that had mercilessly clipped the Philippines’ economic growth in 2020 through to 2021 under one of the harshest lockdowns by any country in the world. Unfortunately this year, just after a resolve to move forward despite the virus still lingering, the Russian invasion of Ukraine jarred the world’s economic recovery and majorly upset global supply chains, causing oil prices to rise to record highs, and holding ransom the normal flow of grains and fertilizer inputs.

The worst is not over yet, with the World Bank and the International Monetary Fund looking at slowing global economic growth, particularly because a number of developed economies face structural adjustments to cope with dependence on imported oil.

Inflation also is still a big problem, and while the Philippines has managed to keep it below double digits, ours is among the highest in the region. Apparently, we are not interpreting correctly some of the basic economic interventions that are being put in place to tackle high food costs.

Upper middle-income status by 2025

PDP 2023-2028 draws from the progress made in the first five years of AmBisyon 2040, an aspirational plan adopted in 2016 by former president Rodrigo Duterte under Executive Order 5, which was signed in October during his first year in office.

Highlights of the development roadmap for next year include a return to the more normal annual real gross domestic product (GDP) growth of six to seven percent from a negative 9.5 percent in 2020 and a rebound 5.7 percent in 2021; and the push to a more normal headline and food inflation rates of 2.5 to 4.5 percent, which had risen to eight percent in November and brought the year-to-date standing at 5.6 percent, well outside the Bangko Sentral ng Pilipinas’ target of two to four percent for 2022.

For 2024 onwards, GDP growth is targeted at 6.5 to eight percent, with inflation levels going back to the old two to four percent. Other targets for 2028 include a reduction in unemployment to four to five percent, a national debt stock to GDP ratio reduction to 48 to 53 percent, and a poverty incidence drop to 8.8 to nine percent.

By 2025, NEDA hopes to achieve upper middle-income status. This is a year behind what President Marcos had declared in his inaugural State of the Nation address last July. During the previous administration, before the pandemic struck, the Duterte economic team was looking at an upper middle-income status by 2020.

Balisacan is relying on continued strong consumer demand and an upbeat labor market in laying down such optimistic targets, even while citing “cross-cutting strategies” that would facilitate the transformation goals.

Key among the strategies mentioned are the digitalization of government processes and public services; the improvement of local and global connectivity of the domestic markets and the integration of leading and lagging regions; and the continued reliance on the private sector’s resources, technologies, and potential for scale economies through public-private partnerships (PPPs).

Need for more investments

Balisacan made note of the need to ramp up investments, particularly for critical infrastructure projects needed to sustain economic growth in the coming years. One of the major shortfalls of the previous administration’s Build Build Build (BBB) push has been the shortfall in both internal and external sources of funds.

A sovereign wealth fund (SWF), an idea supposedly picked up by the President during the business-part of his Singapore trip, was quickly picked up by some members of the economic team and given a framework. It was then pushed through the legislative mill by no less than his cousin, House Speaker Martin Romualdez, and son Sandro Marcos, and introduced in the Lower House as the Maharlika Wealth Fund (MWF).

Amendments followed arising from widespread negative public perceptions, especially on the utilization of the Social Security System and Government Service Insurance System pension funds. With the exclusion of the SSS and GSIS monies in later versions of the bill, MWF was renamed Maharlika Investment Fund (MIF).

Nonetheless, the issue of timeliness is being ignored, and Balisacan is now calling the bill an “innovative” finance measure, a sort-of flip-flopping on reservations initially aired during his hearing before the Commission on Appointments.

Right framework

Apparently, the NEDA chief’s comments about the need to give the initial MWF proposal the right framework to make it more acceptable had prodded changes in this controversial bill, and contributed to the revisions and consequent speedy passage in the House.

The House bill will need a counterpart version in the Senate, but it may not go through the same ease or, more importantly, remain consistent with the House bill’s framework, even as the President has certified the measure as urgent. Expect more legislative work on the proposal when Congress resumes sessions next year.

In following through the latest talks on the MIF, a point raised by former Finance undersecretary Romy Bernardo in his BusinessWorld column resonates. In his postscript, he suggests that the Philippine government ascribe to an ownership of less than 50 percent in the MIF, with the remaining divided among multilateral lending institutions like the Asian Development Bank, International Finance Corp., and Asian Infrastructure Investment Bank.

This, indeed, would become a source of bigger funds, while giving the MIF the status of being truly a sovereign fund.

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