I am pleased to share with readers a post that Christine Tang and I wrote for Globalsource Partners (globalsourcepartners.com) subscribers on the Philippines fiscal outlook. We are their Philippine Advisers.
Last Friday, the Development Budget Coordination Committee (DBCC), an inter-agency body made up of the departments of budget, finance, planning and the BSP (Bangko Sentral ng Pilipinas), presented the new administrations fiscal program for 2022 to 2028. The medium-term program hinges on the economy sustaining its growth clip at 6.5% to 8% starting 2023 and inflation returning to the BSPs 2% to 4% target starting 2024.
Given nominal GDP growth of 9% to 10%, the fiscal program aims to reduce the overall national government (NG) budget deficit, which reached 8.6% of GDP last year, by 1 ppt every year until it falls to 3% of GDP, the pre-pandemic deficit target. With this performance, it expects the NG debt ratio, which is anticipated to creep up to 61.8% of GDP this year, to gradually drop to 52.5% of GDP by the end of the administration.
The reduction in the deficit and debt ratios to GDP will be done through a combination of raising revenues and cutting expenditures relative to GDP. The revenue effort is programmed to rise from 15.5% last year to 17.6% by 2028 or an increase of 2.1 ppt, while spending as a share of GDP is programmed to fall from 24.1% last year to 20.6% in 2028, equivalent to a decrease of 3.5 ppt. Despite the reduction in expenditures, government intends to keep infrastructure spending at 5% to 6% of GDP.
OUR VIEWAs far as the numerical targets are concerned, the latest medium-term fiscal program is basically an extension of the last one, crucial mainly in terms of signaling to markets that the new administration is committed to pursuing fiscal consolidation. The 2028 target for the debt ratio, i.e., 52.5% of GDP, is certainly more realistic and supportive of post-pandemic recovery needs, than a promise of quickly paring it to the pre-pandemic ratio of 39.6%.
We are looking forward to the nuts and bolts of the fiscal program, particularly:
1. New economic growth drivers that will keep the medium-term GDP growth rate at 6.5% to 8%, an ambitious target for the post-pandemic period especially with the lingering effects of the pandemic, the many external headwinds (end of cheap credit, elevated commodity prices, slowing global economic growth) and governments more limited macro policy space (both fiscal and monetary) to support domestic consumption and investments.
We note that the 6% growth target for goods exports is itself unaspiring, especially in light of the new laws liberalizing foreign investments.
2. Sources of new revenues that will keep revenue growth above nominal GDP growth from 2023 onwards. The Finance secretary said recently that the economic team will pursue the remaining tax packages of the Duterte administration, dealing with property valuation and financial sector taxation which, while revenue neutral, will make the tax system more efficient. He is also in favor of imposing taxes on digital transactions but did not specify expected revenue inflows.
3. Expenditure reforms that will create space for continuing social protection programs, especially in health and education, and maintaining infrastructure spending at 5-6% of GDP, even as government pared its overall spending as a share of GDP. The budget for military pension liabilities alone is expected to take up about 1% of GDP annually during the term of this administration.
We await the Presidents State of the Nation Address later this month where he is expected to present his administrations economic program.
End.
POSTSCRIPT:Although we expect GDP growth this year to reach 6.8% (driven by base effects and election spending), we think the governments 6.5% to 8% growth target through 2028 is rather ambitious.
My own gut feel is medium-term growth potential is now much lower, closer to 4-5%, the long-term Philippine growth rate rather than the 6-7% of the past decade pre-pandemic. As mentioned in our post, this is because of the drag from scarring from the pandemic (closed businesses, education, and labor mismatches) and considering the end of decade long credit cycle (cheap credit), elevated inflation everywhere affecting consumption and investments, global economic slowdown, even risk of recession, and governments more restricted fiscal space.
But I would like this government to prove me wrong. The way I think it can do this is if it can quickly earn investors trust to attract more FDIs, especially job creating ones, and revive PPP (public-private partnerships) as a way of sustaining infrastructure investments, including digital ones. Moving us towards more investment rather than consumption driven growth.
On PPP, there are immediate to dos:
1) Signal respect for sanctity of contracts and the rule of law by complying soonest with the terms of the MWSS concession agreements and the international arbitration ruling. (See the column of National Scientist and UP Economics Professor Raul Fabella https://bit.ly/Fabella060622).
2) Scrap the midnight revisions on IRR (implementing rules and regulations) on build-operate-transfer (BOT) projects and PPPs. The flawed revisions include overly restrictive MAGA coverage (material adverse government action), and removal of provisions on parametric formula for rate setting, and on international dispute settlement. (Please see the Op Ed that summarizes the specific concerns of the Foundation for Economic Freedom and the Makati Business Club https://bit.ly/BOT_amendments ).
Romeo L. Bernardo was finance undersecretary from 1990-96. He is a trustee/director of the Foundation for Economic Freedom, Management Association of the Philippines, and FINEX Foundation. He is Philippines principal adviser to Globalsource Partners
globalsourcepartners.com
romeo.lopez.bernardo@gmail.com
Read the rest here:
A first look at the medium-term fiscal program - BusinessWorld Online
- Freedom Caucus: The Fight Club of Congress - The Christian Science Monitor - September 29th, 2023 [September 29th, 2023]
- History shows a better strategy than shutdown for reducing the deficit - MinnPost - September 29th, 2023 [September 29th, 2023]
- Haake: For the freedom caucus, chaos is the point - Chicago Tribune - September 29th, 2023 [September 29th, 2023]
- Appeals court sets hearing date on Missouri abortion rights initiative ... - Missouri Independent - September 29th, 2023 [September 29th, 2023]
- Things to Know About the Billionaire Card - a Diamond-Encrusted ... - CEOWORLD magazine - September 29th, 2023 [September 29th, 2023]
- Report on Countries that are Candidates for Millennium Challenge ... - Millennium Challenge Corporation - August 28th, 2023 [August 28th, 2023]
- The Freedom Caucus' shutdown threat recalls tactics of past House ... - NPR - August 28th, 2023 [August 28th, 2023]
- Opinion | Joe Biden op-ed: 60 years after March on Washington, we ... - The Washington Post - August 28th, 2023 [August 28th, 2023]
- Universal Basic Income: Fiscal fantasy or AI necessity? - talkbusiness.net - August 28th, 2023 [August 28th, 2023]
- Hurtling toward a fiscal cliff - POLITICO - POLITICO - August 28th, 2023 [August 28th, 2023]
- Governor Glenn Youngkin - Virginia Governor Ralph Northam - Proclamation - August 28th, 2023 [August 28th, 2023]
- New Zealand - The Heritage Foundation - January 4th, 2023 [January 4th, 2023]
- Singapore Economy: Population, GDP, Inflation, Business, Trade, FDI ... - January 4th, 2023 [January 4th, 2023]
- Mexico Economy: Facts, Population, GDP, Corruption, Business, Trade ... - December 12th, 2022 [December 12th, 2022]
- Economic liberalism - Wikipedia - November 7th, 2022 [November 7th, 2022]
- Don't ask, don't tell - Wikipedia - October 15th, 2022 [October 15th, 2022]
- In first debate, Healey and Diehl clash over the economy, abortion and Trump - WBUR News - October 15th, 2022 [October 15th, 2022]
- Election 2022: What to know about California propositions - Visalia Times-Delta and Tulare Advance-Register - October 15th, 2022 [October 15th, 2022]
- Vice President Kamala Harris calls on Texans to protect reproductive and voting rights during Austin visit - 25 News KXXV and KRHD - October 15th, 2022 [October 15th, 2022]
- How Republicans in the Rio Grande Valley are using faith to draw in Latino voters - CBS News - October 15th, 2022 [October 15th, 2022]
- Letter to the editor: Pierce will work for values that matter to Senate District 25 - Press Herald - September 20th, 2022 [September 20th, 2022]
- Letter to the editor: Left needs heads examined - Washington Times - September 20th, 2022 [September 20th, 2022]
- Book Banning, Curriculum Restrictions, and the Politicization of U.S. Schools - Center For American Progress - September 20th, 2022 [September 20th, 2022]
- Judge considers halting enforcement of Indiana's near-total abortion ban - The Times of Northwest Indiana - September 20th, 2022 [September 20th, 2022]
- Texas Youth Summit draws conservative to plot the culture war - The Texas Tribune - September 20th, 2022 [September 20th, 2022]
- The Weight of Trump - The Atlantic - September 20th, 2022 [September 20th, 2022]
- Tanzania and Zambia want to upgrade the 'Uhuru Railway' but can they? - The Conversation Indonesia - September 20th, 2022 [September 20th, 2022]
- Power games: Plans to shift to a centralised market in power sector must take into account concerns of all stakeholders - The Indian Express - September 20th, 2022 [September 20th, 2022]
- Inside the Academic-Freedom Crisis That Roiled Florida's Flagship - The Chronicle of Higher Education - September 7th, 2022 [September 7th, 2022]
- Liz Trusss energy price cap handout will put her talent for U-turns to the test - The Guardian - September 7th, 2022 [September 7th, 2022]
- FM stresses joint Arab action to overcome regional crises - Jordan Times - September 7th, 2022 [September 7th, 2022]
- The contract of Nigerian citizenship and diaspora voting - Guardian Nigeria - September 7th, 2022 [September 7th, 2022]
- Study ranks Midland as top economic freedom area in Michigan - The Center Square - September 6th, 2022 [September 6th, 2022]
- Another Shocking Decline in Life Expectancy | The Fiscal Times - The Fiscal Times - September 6th, 2022 [September 6th, 2022]
- Liz Truss Has Been Elected As The New Prime Minister Of The United Kingdom. Replace Boris Johnson - Nation World News - September 6th, 2022 [September 6th, 2022]
- Why the Left Is Learning to Love the Military - The Atlantic - September 6th, 2022 [September 6th, 2022]
- Millions of dollars spent secretly at B.C. Legislature - theBreaker - theBreaker - September 6th, 2022 [September 6th, 2022]
- Economy forecast to grow by 7-7.5% in current fiscal Times of India - English Bharat Times - September 6th, 2022 [September 6th, 2022]
- The Union Government Is Arbitrarily Squeezing States Fiscal Freedom To Borrow - The Wire - August 15th, 2022 [August 15th, 2022]
- House Freedom Caucus calls on McCarthy, McConnell to reject 'lame duck' spending this fall - Fox News - August 15th, 2022 [August 15th, 2022]
- JAGs 7th and most ambitious season yet is titled 'The Freedom Practice' - Vermont Biz - August 15th, 2022 [August 15th, 2022]
- Why is the Michigan Medicine nurses' union abridging freedom of speech? - WSWS - August 15th, 2022 [August 15th, 2022]
- Board of Elections certifies recall effort to oust East Cleveland's mayor - News 5 Cleveland WEWS - August 15th, 2022 [August 15th, 2022]
- Bangabandhu's thoughts on economic freedom are still relevant - The Financial Express - August 15th, 2022 [August 15th, 2022]
- Overview: A Year of Taliban Rule in Afghanistan - Voice of America - VOA News - August 15th, 2022 [August 15th, 2022]
- Rochester enters the era of the $250,000 police officer - Rochester City Newspaper - August 15th, 2022 [August 15th, 2022]
- India aims to be developed nation in 25 years: Modi - Gulf Times - August 15th, 2022 [August 15th, 2022]
- EDITORIAL: Welcome to new thinker on the block - Coeur d'Alene Press - August 15th, 2022 [August 15th, 2022]
- Letters to the editor for Sunday, August 14, 2022 - News-Press - August 15th, 2022 [August 15th, 2022]
- The Serious Lack of Good Governance and Economic Freedom: Root Causes of Sri Lanka's Ongoing Turmoil - Heritage.org - July 27th, 2022 [July 27th, 2022]
- The FOIA backlog continued to grow last year - Federal News Network - July 27th, 2022 [July 27th, 2022]
- More money rolling into state's casinos, less tax being collected The Daily Gazette - The Daily Gazette - July 27th, 2022 [July 27th, 2022]
- EDITORIAL: Fentanyl, death by the dose - Washington Times - July 27th, 2022 [July 27th, 2022]
- Liz Truss's tax cuts are not inflationary - The Telegraph - July 27th, 2022 [July 27th, 2022]
- The UN wants to educate children it will succeed only if it feeds them first - The Guardian - July 27th, 2022 [July 27th, 2022]
- Sunburn The morning read of what's hot in Florida politics 7.27.22 - Florida Politics - July 27th, 2022 [July 27th, 2022]
- Financial Giants Reject West Virginia's Claims That They're Boycotting Fossil Fuels - The Epoch Times - July 19th, 2022 [July 19th, 2022]
- Five Waldo County towns ready to vote on broadband - Republican Journal - July 19th, 2022 [July 19th, 2022]
- Indian Navy expected to spend 70 pc of capital budget in domestic procurement this fiscal: Rajnath Singh - ThePrint - July 19th, 2022 [July 19th, 2022]
- NGO letter opposing T.42 amendments in appropriations - Government Accountability Project - July 19th, 2022 [July 19th, 2022]
- Digital services provided by foreign firms to be taxed from tomorrow - The Kathmandu Post - July 19th, 2022 [July 19th, 2022]
- Ayushman health ID card: A need for fine tuning! - Times of India - July 19th, 2022 [July 19th, 2022]
- Windfall tax on crude goes against incentive of more pricing freedom - The Financial Express - July 9th, 2022 [July 9th, 2022]
- Diversity, equity and inclusion update: June 2022 issue | CU Boulder Today - CU Boulder Today - June 29th, 2022 [June 29th, 2022]
- Menendez, Schiff alarmed that Biden again approves US military aid to Azerbaijan - Armenian Weekly - June 29th, 2022 [June 29th, 2022]
- Egypt is cozying up to Russia. It's time for the US to step in. - Atlantic Council - June 29th, 2022 [June 29th, 2022]
- PM to say to G7 leaders: We must keep up our resolve on Ukraine - GOV.UK - June 29th, 2022 [June 29th, 2022]
- Where have all the Christians gone? | News, Sports, Jobs - Williamsport Sun-Gazette - Williamsport Sun-Gazette - June 29th, 2022 [June 29th, 2022]
- President Biden waives Section 907 restrictions on US aid to Azerbaijan - Armenian Weekly - June 24th, 2022 [June 24th, 2022]
- Senate retirement bill benefits wealthy Americans - The Hill - June 24th, 2022 [June 24th, 2022]
- Ambassador Kierscht Interview with The Key - US Embassy in Mauritania - USEmbassy.gov - June 24th, 2022 [June 24th, 2022]
- Roe v. Wade overturned: How will it affect abortion access in Indiana - The Herald-Times - June 24th, 2022 [June 24th, 2022]
- Constricted devolution of fiscal power - The Kathmandu Post - June 22nd, 2022 [June 22nd, 2022]
- Public office and accountability issues in Nigeria - Daily Trust - June 22nd, 2022 [June 22nd, 2022]
- Shaheen, Portman Participate in Discussion Hosted by Dartmouth on Russia's Unprovoked Invasion of Ukraine | US Senator Jeanne Shaheen of New Hampshire... - June 22nd, 2022 [June 22nd, 2022]
- Congress Ignores Pressing National Business While It Obsesses on Jan. 6 - The Epoch Times - June 11th, 2022 [June 11th, 2022]
- Ukraine Economy: Population, GDP, Inflation, Business, Trade, FDI ... - June 11th, 2022 [June 11th, 2022]
- How would India fare on a modified misery index? Better than US & UK, worse than most others - ThePrint - June 11th, 2022 [June 11th, 2022]
- "Don't Want RBI To Become Extension Of Government": Ex CEA Arvind Subramanian - NDTV Profit - June 11th, 2022 [June 11th, 2022]
- Congress ignores pressing business while it obsesses on Jan. 6 - Minot Daily News - June 9th, 2022 [June 9th, 2022]