The Philippines is strong enough to “weather the storms” looming over its economy, given that the Duterte administration has already taken aggressive measures to tame domestic inflation and sustain the country’s growth momentum amid global risks such as the prolonged US-China trade tensions and the oil price surge in the world market, Finance Secretary Carlos Dominguez III said.
Dominguez said the government has been addressing the issue of rising inflation as early as May this year with the Bangko Sentral ng Pilipinas (BSP) having increased interest rates since that time up to the present by a combined 150 basis points, while the Executive Branch has taken strong non-monetary measures to temper price increases, which has risen this year largely as a result of food supply issues and the soaring global oil prices.
“We are confident that we can weather the storms but we are not complacent,” said Dominguez in a recent interview.
He said a protracted US-China trade dispute would eventually have an adverse impact on the Philippine economy, which, however, is “in a very good position” to overcome this challenge because of the following:
1) its healthy gross international reserves, which as of September this year can adequately cover over 7 months worth of imports of goods and payments of services;
2) a robust banking system;
3) the implementation of the first tax reform package and improved tax administration, which increased revenue collections in the first 8 months of 2018 by close to 20 percent compared to the same period in the previous year; and
4) the vigorous implementation of the Duterte administration’s “Build, Build, Build” infrastructure program.
“We are going to use that, our domestic spending, as a countercyclical measure to sustain our growth,” Dominguez said. “We are very confident that our ‘Build, Build, Build’ program is countercyclical and that we can afford it.”
Dominguez said that in his separate meetings with credit rating agencies held recently in Bali, Indonesia, he assured them that the Philippines had prepared for the global uncertainties now besetting economies across the globe by implementing tax reform and maintaining fiscal discipline.
He said representatives of Fitch Ratings, S &P Global and Moody’s Investor Service “seemed to appreciate” the reforms that the government has taken to buttress the economy against the headwinds now facing it and other countries in the region.
“The one good thing is that we are all working together,” Dominguez said. “Monetary and fiscal policy are rowing in the same direction rather than at cross purposes.”
The Finance chief said funding support from the first package of the Comprehensive Tax Reform Program (CTRP), and the Official Development Assistance (ODA) generously provided by, among others, China, Japan and South Korea have enabled the government to forge ahead with President Duterte’s ambitious infrastructure modernization initiative.
Dominguez said the reforms needed to drum up investments have deepened investor confidence on the watch of President Duterte, as shown by the 52 percent rise in net foreign direct investments (FDIs) to $6.669 billion in the January-July 2018 period as compared to $4.385 billion in the same seven-month period last year.
In July, net FDI inflows reached $ 914 million or 62 percent higher than $ 344 million recorded in the same period in 2017, he said.
According to the Department of Finance (DOF), basic food items like rice, fish, meat and vegetables have been major drivers of inflation this year, with the contribution of rice rising 10 times to 1 percentage point of the inflation rate.
Data from the Philippine Statistics Authority (PSA) showed that rice was the number one contributor to inflation in September 2018.
In contrast, the contribution of non-food items such as electricity, gas and other fuels have slowed down since July this year.
Dominguez said that rice tariffication, which is provided for in a bill pending in the Congress, and other reforms in food policy are needed to address the country’s repeated rice supply problems.
The rice tariffication bill, once passed into law, is expected to liberalize the importation of rice in the country. It will also help lower rice prices while providing enough support for local farmers who will be affected by the influx of cheaper rice imports, through the establishment of a multibillion-peso Rice Competitiveness Enhancement Fund (RCEF).
This bill has been certified as urgent by President Duterte.
Economic managers said liberalizing rice imports will lower the retail price of rice by P2 to P7 per kilo (based on latest estimates), and reduce inflation rate by at least 0.4 percentage points.
Among the short-term measures recommended by the DOF to help rein in inflation were for the Department of Agriculture (DA) to undertake steps to bring down food prices, and for the Departments of Social Welfare and Development (DSWD) and of Transportation (DOTr) to speed up the release and distribution of cash cards to the poorest households and fuel subsidy cards to operators of public utility vehicles, respectively.
The release of unconditional cash transfers by the DSWD and fuel subsidies through the Pantawid Pasada Program are among the social mitigation measures under the first tax reform package–the Tax Reform for Acceleration and Inclusion Act (TRAIN)–that are meant to cushion the impact of inflation on vulnerable sectors.
According to the DOF, the DA, which is the key to bringing down food prices, has been empowered under several presidential directives to put in place measures to increase food supply and bring down food prices.
These presidential directives include Administrative Order No. 13, which removed administrative restrictions on the importation of agricultural products.
President Duterte also issued Memorandum Order No. (MO) 26 directing the DA and the Department of Trade and Industry (DTI) to implement measures to reduce the gap between the farmgate and retail prices of agricultural products.
MO 27, meanwhile, ordered the DA, Department of the Interior and Local Government (DILG), Philippine National Police (PNP), and the Metropolitan Manila Development Authority (MMDA) to “adopt measures to ensure the efficient and seamless delivery” of imported agricultural and fishery products from ports to markets; while MO 28 directed the National Food Authority (NFA) to immediately release existing rice stocks in its warehouses.
Over the medium term, the DOF said the country needs to increase agricultural productivity to stabilize food prices by:
· Individualizing the agrarian reform collective titles to improve property rights and incentivize farm production; and
· Improving efficiency by reallocating the budget from favoring certain crops and production inputs to more broad-based farm infrastructure, research and development, and support services.
The directives issued by the President form part of the measures unveiled in early September by the Cabinet’s Economic Development Cluster (EDC) to combat inflation.