Sunday, October 18, 2015

Philippine GDP growth projections until 2030

I originally posted this on May 31, 2011. My update below it....

A friend in facebook gave this table, commented that Lackluster long-term outlook (accessible by registered users) from the Economist Intelligence Unit, especially since popn is growing at around 2%. There's still hope. Let's prove this wrong."

Real GDP growth projections, 2011-20 is 5.6 percent, and from 2021-30 is 5.7 percent. I like the assumptions made in these projections:
In the absence of institutional change, economic growth in the Philippines is likely to remain below potential. The country's demographic profile holds the possibility of an improved performance.

I think the assumptions and projections in the above table are realistic. Government bureaucracy and robbery holds back potential fast growth. Private consumption by households (C) is currently 76 percent of GDP, thanks partly to high population growth. Entrepreneurship among the poor is high, but government bureaucracies say such efforts are criminal and illegal unless the poor will get lots of signatures and permits from the bureaucrats. This puts a brake on potential fast growth.

Private investments (I) is low in the country because domestic savings (S) is also low. So it is really C that mainly drives GDP growth in the country. And C is mainly a product of high OFW remittances. Most countries with low population growth have low C/GDP ratio.

More borrowings to perk up government consumption and investments (G) are passe. We only have more public debt as a result, which affirms the assumptions by that article, "in the absense of institutional change..." More borrowings especially from official/foreign aid only means more wastes and robbery in the public sector. So public debt is rising while productivity from such borrowings are questionable.

One good example was the hundreds of millions of dollars of foreign loans for massive reforestation across the country in the late 80s to early 90s, mainly from the ADB, WB, and OECF/JBIC. So much money, so much foreign loans, and where are the forests from those huge borrowings? Productivity is almost zero, if not negative, as we taxpayers keep paying for those foreign loans until now.

Another friend suggested that "for institutional change to take place, we have to believe that that will happen. We should start having faith in our institutions."

I think this is faith-based policy making. Even if we know that public officials will waste and steal public funds (they've done so in the past), we still should have faith that they will not steal. What we need in the country is the rule of law, not additional borrowings. Stealing is stealing, the guilty will be prosecuted, make that message very clear across the whole bureaucracy. And local revenues will be more than sufficient to finance public spending as the biggest leak, public wastes and robbery, is plugged.

And we go back to the main premise or assumption of the EIU when they made those 20-years GDP growth projections for the Philippines, the optimistic version:
In the presence of institutional change (rule of law), economic growth in the Philippines is likely to achieve its potential,

The same friend argued that the rule of law is not enough. It's like saying authoritarian regimes are good because they implement the law effectively.

I corrected him, The "rule of law" simply means the law applies to all, no one is above the law. Presidents and dictators, Prime Ministers and ordinary people. When the law says "no stealing" or "no killing", then that's it. Not even Presidents or dictators can steal or kill. Whether one is the poorest person in the planet or the President of a country, the law against stealing applies. Authoritarianism and dictatorships are rule of men, not rule of law.

Related articles:
1. Econ for statists 5: Y = C + I + G + (X-M)
2. What is the role of government?
3. Hayek 7: Rule of law means no exception

I made a similar growth scenario and projection, 2016-2025, in a paper I wrote for my sister's auditing firm, Alas Oplas and Co. CPAs. I shared that paper with fellow participants in an ASEAN scenario workshop last Thursday, October 15, 2015 in Bangkok, organized by the Siam Intelligence Unit (SIU). The simple equations and assumptions, I will post in another blog post, but here is a preliminary result.

Less government business regulations and taxation will greatly help the PH economy achieve faster growth. Entrepreneurship and job creation is not a crime that should be slapped with multiple regulations, taxes and permits.

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