The water is fine

On Wednesday, April 12, 2023, President Marcos Jr.’s economic team led by Finance Secretary Benjamin E. Diokno, with Bangko Sentral Governor Felipe Medalla in tow, painted a buoyant outlook for the Philippine economy before American investors and bankers in Washington DC. It is the third economic briefing given to US investors in nine months.

The April 12 tete-a-tete was hosted by Ambassador to the US Jose Manuel Romualdez, who lately has become more hawkish than the Americans themselves in their attitude towards China. President BBM himself has said the Philippines is “friend to all, enemy of none.”

Bankers in the audience included those from Bank of America Securities, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Standard Chartered Bank and UBS. These are the world’s top banks. They are cash storage houses of the world’s richest people.

The US is the Philippines’ third largest trading partner (it used to be No. 1) and one of the biggest sources of foreign investments (it used to be No. 1).

Lately, however, the Philippines has acquired enhanced strategic importance to the US. Its Cagayan province is barely 600 kms from Taiwan which American war planners think China will invade between now and 2027. Beijing has always treated Taiwan as its province.

Accordingly, the US is prepositioning war materiel and rotating troops in nine virtual bases in the Philippines. Four of the nine bases are brand new, courtesy of BBM; of those, two are in Cagayan.

So the implied message of the Philippine team to US investors is this: “Hey, guys, American soldiers are now guarding the Philippines. It’s safe. Why don’t you bring your money? Come, the water is fine.”

“Now, we are unfurling our sails to journey towards shared and sustainable economic prosperity, and your investments will be the wind driving this forward,” Diokno said, alluding to sailing.

Feeling DC’s balmy weather, the US-educated secretary talked of hope after winter, “of new beginnings and of brighter days ahead.”

“Amid a challenging global environment, the Philippine economy has managed to weather the storms and stay the course towards sustainable economic growth. And while challenges remain, we are confident that they can be mastered,” Diokno said.

“This confidence is grounded in the country’s firm macroeconomic fundamentals and continuously improving economic performance. These are supported by continued growth, a favorable demographic profile and an economic environment that is open for an even wider range of foreign investments,” he added.

He recited some numbers.

In 2022, the Philippine economy posted a 46-year record-high growth rate of 7.6 percent, higher than target of 6.5 to 7.5 percent, exceeding forecasts, and placing the Philippines among the best performing economies in the Asia-Pacific region.

This growth was driven by robust domestic aggregate demand, which expanded by 10.8 percent due to strong household consumption and investments.

In 2023, growth is between 6 to 7 percent, slightly lower due to global slowdown, but high yet doable.

Despite inflation and external headwinds, overall business outlook is more upbeat, until the next quarter and over the next 12 months, thanks “to higher demand and sales, a fully reopened economy, better business conditions and new business opportunities, particularly in the health care, manufacturing and construction sub-sectors.”

Manufacturing is surging. The March S&P Global Purchasers’ Managers Index was 52.5, the 19th consecutive month of above 50. This signals strong growth and resilience across the Philippine manufacturing sector.

The jobs market is bright. In February 2023, the unemployment was a low 4.8 percent, down from February 2022’s 6.4 percent. Labor force participation increased to 66.6 percent, higher than the 63.8 percent last year.

Labor underemployment declined to 12.9 percent, lower than the 14 percent in February 2022.

Fiscal performance remains strong. In 2022, revenue collections reached P3.5 trillion ($65 billion), up 18 percent from 2021 and 7.3 percent higher than the P3.3 trillion programmed.

Revenue collections will rise further from P3.7 trillion ($68 billion) this year to P6.6 trillion ($121 billion) in 2028.

“The Philippines’ impressive economic performance is the result of years of interconnected structural reforms,” declared Diokno.

“We are implementing the right mix of policy instruments that will foster investment-led growth,” related the DOF chief, “setting into motion genuine economic and social transformation in the medium term.”

Debt-to-GDP is to be less than 60 percent by 2025; deficit-to-GDP ratio to 3 percent by 2028; upper middle-income status by 2025 and infra at 5 to 6 percent of GDP annually, up from 2 percent in 2001-2015.

Diokno emphasized: “Infrastructure spending is front and center of our growth strategy.”

“For the next six years, we are determined to sustain this (5 percent) high infrastructure investment but with a twist,” he said. “This time, we will complement government spending with the enhanced public-private partnership mechanism.”

The easier PPP mechanism is now good for energy, logistics, transportation, telecommunications and water infrastructure.

“In less than nine months, the priorities and direction of the Marcos Jr. administration has become clearer and more concrete,” Diokno said.

Last month, the NEDA Board approved 194 high-impact Infrastructure Flagship Projects worth P9 trillion ($167 billion), adopting an optimal mix of financing from various development partners.

Projects target physical and digital connectivity, green and blue projects, countryside development, energy and health.

Open to 100 percent foreign ownership: Retailing, the practice of professions, telecommunications, airports, toll roads, shipping, expressways and renewable energy – solar, wind, hydro, and tidal.

The Corporate Recovery and Tax Incentives for Enterprises (CREATE Law) cuts corporate income tax rates and simplifies fiscal incentives, now performance-based, time-bound, targeted and transparent.

Eligible for longer income tax holidays are digital production technologies, highly technical manufacturing and production of innovative products and services and innovation support facilities.

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