Alarming

We should be alarmed that our government is not alarmed by the disastrous path our economy has taken.

The Philippine Statistics Authority (PSA) announced that our GDP growth rate slowed to just 2.1 percent in the third quarter. This is lower than the most pessimistic predictions of independent economists. Our Q3 growth rate now matches our population growth rate.

Our inflation rate has risen to 7.8 percent in October. Global banks pronounced the Philippines as being in stagflation. Most projections now estimate our full year growth will be about 2.6 percent – way below the already degraded official target of 3.5 to 4.5 percent.

The low growth projection puts the Philippines way below the norm for the ASEAN-5 economies. Vietnam grew 9.95 percent in Q3. Indonesia, Singapore and Malaysia grew by about 5.4 percent. The Philippines is the village fool at 2.1 percent.

The numbers pull the rug from under the misdirection attempted by administration propagandists who want us to believe external factors are pushing us down. Our peers in the region face the same adverse global conditions – yet they are able to deliver growth for their people.

Their currencies are a lot more stable. The difficult global conditions are not harming their international reserves. Their central banks do not have to raise policy rates to levels that punish economic expansion. In our case, policy rates were raised last month by 50 basis points.

A former BSP official advocates another jumbo rate increase in December. Deutsche Bank warns Philippine authorities against doing this. It will kill an already failing domestic economy.

Our businesses – from small family-owned enterprises to the large conglomerates – can only look on as interest rate escalation shell-shocked. Many businesses are seriously considering closing shop at the end of the year. This will reflect in increased unemployment and all the ills associated with it.

Alarming as the latest numbers are, we get no reassurance from those who govern us. When we fretted over our ballooning official debt, President Marcos Jr. told us the debt is just meaningless numbers floating in the air. When severe drought threatens, he told our people to buy plastic pails. When the peso dropped sharply, he told our people not to panic. When the distressing GDP numbers were released, he said nothing. He seems busy putting up tarpaulins to conceal poverty in the city during the duration of the ASEAN Summit.

At the rate our growth rate has collapsed, it is unlikely that we could raise the revenues presumed in the proposed P7.1-trillion 2027 budget. That will force us to borrow more at costlier rates. Former finance officials have criticized the administration’s obsession with dole-out programs, saying these have not helped improve our productivity.

Our finance officials love to point out that about two thirds of public borrowing is from local sources. This is so problematic in so many ways.

Domestic borrowing is costlier because of our interest rate regime. Since 2022, when Marcos Jr. took power, our government has borrowed about P4 trillion from Philippine banks and financial institutions. That takes money that could have been used by the private sector to fund productive growth. Consequently, our economy has fared poorly in capital aggregation – and eventually in raising productivity.

The Maharlika Investment Corporation (MIC) exemplifies wasteful use of domestic capital resources. Tens of billions were removed from otherwise perfectly functioning government financial institutions to be used as capital by MIC. To date, this entity has not made any major investment despite its large overhead costs. The DBP and LBP could have better used the funding to fuel domestic economic growth.

If the low growth continues, government’s revenue assumptions will have to be thrown out of the window. We will rely more on debt to keep basic government operations running. Some of the forthcoming borrowing will also be lost to corruption.

If we hit a liquidity crisis in the next few months, no blame can be assigned to “external factors.” It will have to be credited entirely to this administration’s mismanagement.

We are not wandering mindlessly into stagflation. It is almost according to design: buy popularity through money politics and hope that further down the road the debt will take care of itself. Nothing could be more irresponsible.

The low growth is not a cyclical event. It is a self-inflicted structural defect.

The only way to pull our economy out of the current rut is for government to pump-prime productive economic activity. But we do not have the funds for that. About a third of the national budget goes to debt service. If growth sputters, we could not borrow ourselves out of this condition. Certainly not with a national budget crafted to make looting easier.

Local businesses dependent on discretionary spending are now feeling the pain. Households are losing the ability to spend on non-essentials as they cope with inflation. A consumption-led economy is most vulnerable in this regard. It could resemble a bubble bursting under the pressure of affordability.

Some are hoping, against the evidence, that maybe the next year will be better. There are scarce indications of that.

The Q3 figures show a dramatic contraction of our agriculture and fisheries. Capital aggregation is not happening. To the contrary, disinvestments appear to be happening. The sad story of our stock market tells the story.

We will see more of the same next year.