Business World
Introspective
Romeo L. Bernardo
Posted on August 15, 2016
Posted on August 15, 2016
We just did our Quarterly Outlook GlobalSource Partners, entitled “Great Expectations” -- after Dickens’ tale of personal growth and development of poor orphan Pip. The public is just as bullish on the Philippines and on the Duterte administration, which holds the record for the highest start of term level of public trust (at 91% ). Expectations that “change is coming,” the President’s campaign slogan, is palpable in Manila’s congested streets as it is in the record-breaking stock market.
For economy watchers like us, the key question is: Can the
President translate this political capital into concrete programs that
will shift the economy to a higher growth path? To be sure, this
government is starting from a position of strength as far as
macro-economic fundamentals are concerned: ample fiscal space, low
borrowing costs, robust external accounts. It also has a number of
infrastructure and PPP projects, deemed “low hanging fruits” that it can
kick-start to quickly establish a track record of execution capability
that will attract investor interest, especially if alongside streamlined
bureaucratic processes that reduce the cost of doing business. With the
President’s decisiveness and control of a super majority in Congress,
as well as his economic managers’ level of technical expertise and drive
to prove that a cabinet that looks like a “council of elders” is
superior to the last administration’s, tagged as a “student council,” we
think real economic transformation that would yield this government’s
investment led 7%-8% growth target plausible over the medium term.
But attaining that goal will take time.
Our revised growth forecast, already much higher than the consensus, reflect catch up infrastructure that will allow the economy to keep to a 6%-7% growth rate. Efforts to pursue and fast-track more construction projects will likely be impeded by absorptive capacity problems in key infrastructure agencies that will not be easy to fix in the short term.
In the meantime, growth will continue to be dominated by consumption, driven by continued expansion in BPO services and some resilience in remittances, while goods exports will remain hobbled by weak global demand.
Upside surprises to our forecast may stem from speedier ramp up of government’s infrastructure program from less than 2.5% of GDP currently to the 5% target, while the opposite poses major downside risk. Notwithstanding ample fiscal headroom at this time, a dramatic decline in tax effort, including from revenue-eroding tax reform package, could give rise to jitters in financial markets, especially if accompanied by rapid increases in unproductive public spending.
External developments to watch include opportunities opened up by friendlier relations with China (upside), the OFW situation in oil exporting countries (downside) as well as political events in developed economies, including “Brexit” and the upcoming US election (unknown). A further downside could come from dampener in investment climate, especially from countries sensitive to human rights issues, if the war on drugs get out of hand. The President has also kept the public guessing on what his full play is on a number of surprise broadsides that may impact on investments, e.g. against a high profile business man (“an oligarch”) active in online gaming, mining companies in the cross hairs of his activist environment secretary, and against so-called “labor contractualization,” an ill-defined term.
(This is exerpted from the executive summary of our quarterly report to GlobalSource Partners. GSP is a New York-based global network of independent senior analysts who provide international subscribers macro, financial and political risk analysis. Our counterparts in other emerging markets include such recognizable names as Domingo Cavallo [former Economy Minister and Central Bank President of Argentina], Alfonso Pastore [former Central Bank President of Brazil], Fan Gang [Board Member of the People’s Bank of China] and Michael Pettis [Professor of Finance in the Peking University]. Lazaro Bernardo Tiu and Associates colleague Christine Tang and I are their Philippine partners. (See globalsourcepartners.com).
Romeo L. Bernardo is a Board Director of the Institute for Development and Econometric Analysis. He was Undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
But attaining that goal will take time.
Our revised growth forecast, already much higher than the consensus, reflect catch up infrastructure that will allow the economy to keep to a 6%-7% growth rate. Efforts to pursue and fast-track more construction projects will likely be impeded by absorptive capacity problems in key infrastructure agencies that will not be easy to fix in the short term.
In the meantime, growth will continue to be dominated by consumption, driven by continued expansion in BPO services and some resilience in remittances, while goods exports will remain hobbled by weak global demand.
Upside surprises to our forecast may stem from speedier ramp up of government’s infrastructure program from less than 2.5% of GDP currently to the 5% target, while the opposite poses major downside risk. Notwithstanding ample fiscal headroom at this time, a dramatic decline in tax effort, including from revenue-eroding tax reform package, could give rise to jitters in financial markets, especially if accompanied by rapid increases in unproductive public spending.
External developments to watch include opportunities opened up by friendlier relations with China (upside), the OFW situation in oil exporting countries (downside) as well as political events in developed economies, including “Brexit” and the upcoming US election (unknown). A further downside could come from dampener in investment climate, especially from countries sensitive to human rights issues, if the war on drugs get out of hand. The President has also kept the public guessing on what his full play is on a number of surprise broadsides that may impact on investments, e.g. against a high profile business man (“an oligarch”) active in online gaming, mining companies in the cross hairs of his activist environment secretary, and against so-called “labor contractualization,” an ill-defined term.
(This is exerpted from the executive summary of our quarterly report to GlobalSource Partners. GSP is a New York-based global network of independent senior analysts who provide international subscribers macro, financial and political risk analysis. Our counterparts in other emerging markets include such recognizable names as Domingo Cavallo [former Economy Minister and Central Bank President of Argentina], Alfonso Pastore [former Central Bank President of Brazil], Fan Gang [Board Member of the People’s Bank of China] and Michael Pettis [Professor of Finance in the Peking University]. Lazaro Bernardo Tiu and Associates colleague Christine Tang and I are their Philippine partners. (See globalsourcepartners.com).
Romeo L. Bernardo is a Board Director of the Institute for Development and Econometric Analysis. He was Undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
