Prospects

Officially, our GDP growth target for this year is between 6.5 percent and 7.5 percent.

Given the global context, that growth rate might seem ambitious. The rise of populist leaders in the US and Europe raises prospects for protectionism. That will restrict global trade, the key driver of economic growth. Earlier this week, for instance, president-elect Donald Trump threatened Toyota with stiff tariffs if the company brings its cars made in Mexico into the US market.

Many countries in the European Community are still hobbled by indebtedness and recession. As Britain negotiates to leave that economic community, her domestic economy is expected to recede.

China, still a major engine of global growth, will likely be adversely affected by tightening of trade policies. At any rate, we have seen growth in the world’s second largest economy climb down from double-digits to six percent. The pace of growth in China has basically halved since its export-led heyday. Now our large neighbor is figuring out ways to perk up her domestic consumption to keep her factories humming.

Japan used to be a powerhouse for global growth. Today, it is caught in the vise of stagflation. Although still a technology leader, the country’s demographics weigh down on its ability to grow its economy. Japan’s population is quickly aging and it must decide either to move out its industrial activities or take in more foreign workers.

The global economic slowdown constitutes headwind for our economic expansion. While we are not, by any measure, an export power, we depend on the growth rate of our international partner economies for sustaining the remittances of our migrant labor force and for expanding our BPO sector. Both have become our major sources of foreign exchange.

Recent growth has been helped by cheap money and cheap oil. That episode is about to end.

Oil prices began rising since the oil-producing countries figured out a way to contain production levels. Fortunately, because of the new technologies enabling extraction of hydrocarbons from shale, there should be an effective ceiling on how high the oil price regime will go. At $60 per barrel, shale producers will come to the market in force.

Last month, the US Federal Reserve finally did what they threatened to do for years: raise interest rates. While the rate adjustment has already been factored in by the market, a hawkish Fed could follow up with another round of hikes. The episode of near-zero cost of money has ended. Capital will now be more expensive.

With higher oil prices and higher interest rates, we should expect our own inflation rate to kick up. To help contain inflation, our monetary authorities will have to mop up excess liquidity in the domestic market. That, in turn, will make available capital scarcer. Nothing holds back economic expansion more effectively than tight money supply.

We have so far listed all the challenges that could frustrate our high growth ambitions. Let us now look at the factors that will help us hit the growth target.

For many years, our neighbors spent five percent of their GDP in infrastructure investments while we spent only 2.7 percent on average for the same. That is the reason we have a rotten infra backbone, making everything costlier.

This year, we are raising our infra spending to 5.4 percent of our GDP. That is slightly higher than the regional average. We need to spend more to close the infra gap, bring down logistical costs and hold down prices of basic commodities.

While our neighbors were spending five percent of their GDP on infra investments, they were complementing that with 20 percent in private investments. This year, we expect to bring up the contribution of private investments to 18 percent of our GDP.

If private investments exceed expectation, we could match the regional average of about a quarter of the economy in aggregate public and private investments. If we exceed that, we could begin turning our economic growth from consumption- to investment-led. That will finally make our economy inclusive and bringing us closer to licking the poverty problem.

The devil, of course, is always in the details.

President Duterte’s economic managers look to sustaining our growth rate at 7 percent or better. To achieve that, government will have to be nimble and decisive. Red tape should be cut as promised and projects awarded as quickly as possible.

Government has lined up the priority projects it wants done over the next few years. Some of them will be funded from the national budget. Others will be awarded out to the private sector.

In the past, projects have been held back by tedious bidding procedures as well as burdened by unnecessary bureaucratic paper work. To set up a power generation project, for instance, an investor must acquire about 160 separate approvals. President Duterte ordered the bureaucracy to cut by at least half the number of signatures required to get a business going or start a project.

Previous projects have been held up as well by right-of-way issues. We must find a way to more easily resolve such issues.

The point is: with a more inhospitable global economic environment, we need a more efficient government as a counter-measure. Domestic investment is needed to offset a more difficult trading environment. Unless we move more quickly, we will be overwhelmed by the external challenges and thus fail to meet the growth target of seven percent annual growth rate.

Execution is key. Hopefully President Duterte will understand that getting the economic plans aloft, including the comprehensive tax reform program that will fund infra, is actually more important than the war on drug.