Monitoring the Philippine Economy State of the Economy Report

• Main Authors: Conchada, Mitzie Irene P., Dacuycuy, Lawrence B., Felipe, Jesus, Empeño, Desher Edgar, Miranda, Brendan Emmanuel A.
• Format: text
• Published: Animo Repository 2023
• Subjects: Philippines; Economy; Economic Outlook; Economic Goals; Growth and Development; Behavioral Economics; Econometrics; Economic History; Political Economy
• Online Access: https://animorepository.dlsu.edu.ph/res_aki/166; https://animorepository.dlsu.edu.ph/context/res_aki/article/1166/viewcontent/2022_PEM_Annual_Report_FINAL_JULY_11.pdf
• Institution: De La Salle University

The Philippine economy recovered from the COVID-19 pandemic during 2022. It posted a very high annual growth rate, 7.6%, although this must be understood in the context of a low base. AKI’s State of the Economy Report focuses on three issues in the context of the new Administration’s 8-Point Socioeconomic Agenda and the Philippine Development Plan 2023-2028: growth, inflation, and the fiscal deficit and national debt. Overall, we have a positive view of the economy over the medium and long-term. However, we argue that: -The focus of economic policy has to shift decisively toward changing the structure of the economy by reducing the share of employment in agriculture and increasing exports of more complex products. Otherwise, it will be very difficult to attain (and even more so, maintain) an annual growth rate of 6.5-8% during 2024-2028, as targeted by the administration. -The Russia-Ukraine war price hike has been exacerbated by low productivity growth and an inefficient distribution system. Prices increased significantly within the Food and Housing groups. Nevertheless, the overall price increase (5.8% in 2022 and 8.3% in the first quarter of 2023) was not as dramatic as it has often been portrayed and treated. Interest rate increases will not do the job because this is not a case of excessive demand. -The government does not have full control of the fiscal outcome. Hence, targeting a 3% fiscal deficit by 2028 is an erroneous goal. The fiscal deficit outcome is mostly residual and depends on the saving preferences of the private sector. If the latter decideds to net save, the government wil have to run a fiscal deficit. Likewise, the reduction in national debt to about 50% of GDP by 2028 is also an unclear goal as most of it is domestic currency, and interest rate payments are income for the private sector. Debt issuance is a tool to maintain interest rates within the corridor set by BSP. The government of the Philippines will not default on debt issued in its own currency unless it voluntarily chooses to do so. -The administration ought to recalibrate some objetives of its economic program.