Bangko Sentral economic forecasts
Usually in the first two months of the year I get invited to attend economic forums by the major banks where they present the performance of the Philippine economy and make projections on the economy in the coming year. I do attend most of them but the one I do not miss is when the presenter is the BSP Governor or the Deputy Governor, as it is getting it straight from the horse's mouth.
Last week, the Financial Executives Institute of the Philippines of Cebu (FINEX-CEBU), of which I have been a founding member since the 1980s, had BSP Deputy Governor Gunigundo to speak on the Philippine economy during its quarterly meeting. Gunigundo, as the second-in-command of the BSP with over 35 years experience in central banking, has economic academic credentials from UP and the London School of Economics, and is a religious pastor, is most qualified and interesting to listen to.
The presentation started with an hour-long PowerPoint chart presentation and lasted up to two hours with the open forum. Gunigundo pointed out that given the environment of demographic change, rapid urbanization, climate change, and the retreat from multilateralism worldwide; the Philippine economy is still on solid footing and in a position of strength. Up to the end of 2017, the Philippine economy had 76 quarters (19 years) of economic growth. While there were some quarters or years when growth was from 2% to 4%, we have been growing for over 6% in the last 10 years, and 6.7% in 2017. The GDP growth in the last seven years was achieved amidst a low inflation, strong external position in terms of International Reserves and Debt ratios, stable banking system, increasing capital expenditures, and the revival of manufacturing.
The structural reforms in the economy have made it more efficient and productive as shown in the productivity statistics. There is a very high probability that the Philippine economy will grow at 6% to 7% in the coming years due to or even with the TRAIN Law and the infrastructure buildup. The likelihood of the economy overheating is remote as consumer debt is quite low compared to other countries and the current peso depreciation against the US dollar is manageable with our $90-billion international reserves and low debt-to-GDP ratio.
In the open forum, the issue of the government's drift to authoritarianism was brought up as Gunigundo cited the book, "Why Nations Fail" and the importance of institutions. There is the tendency for authoritarian governments to destroy independent institutions and undermine equal opportunity and the rule of law, which will have negative effects on the economy. As President Duterte has given a free hand to his economic managers, he should also have the right counsel to make political decisions that will not be detrimental to the economy. The issue of the "populist" pronouncements of the president, like doubling the salary of the military/police and the teachers which may not be affordable or sustainable, and the proposed subsidies to some sectors were also discussed. It was noted that when Budget Secretary Diokno contradicts or tones down the presidents statements, Malacañang does not comment further on it.
Another issue in the open forum is the possible upward movement of interest rates which the deputy governor assuaged, that given the low inflation scenario of 4% this year and 3.5% in 2019, the rise in the interest rates would be minimal. Then, the concern of the ease of doing business in the Philippines was brought up. It was shown that over the years the Philippines' ranking in this criterion has actually improved but not as much as the other countries or as much as we want it to.
As I see it, economics will be the least of our problem in the coming years. Our problem will be the politics. It is up to the people to make sure that bad politics will not negate the good economics.
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