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Three weeks ago, I made an analysis of the breakdown
of the Philippines’ 7.8 percent growth in 1Q 2013 and showed how the
services and industry sectors, and the construction and financial
intermediation sub-sectors in particular have contributed the most to such
stunning growth rate. It also showed comparative growth rates of other Asian
economies and the industrial economies of the US and Europe.
This column will now look at some international aspects and
contributors of such growth, and how the Philippines stacks up with its
neighbors in the region as well as the industrial and emerging markets in other
continents.
Numbers below compare countries in terms of their trade
balance (goods and services), current account (trade balance + factor income
balance, including remittances by nationals and foreigners of a particular
countr), the budget balance (governments’ revenues and expenditures) and
interest rates, both short- and long-term.
The Philippines has trade deficit (more imports than
exports) but has current account surplus, meaning the trade deficit was more than
covered up by high factor income, especially OFW remittances.
Table 1. Trade,
Current Account, Budget Balance and Interest Rates, Selected Countries, Latest
Data
Source: The Economist, June 8th 2013, Trade,
Exchange Rates, Budget Balances and Interest Rates
Very high debts of the governments of industrial
countries, reflected in high public debt/GDP ratio, and in the above table,
high budget deficit/GDP ratio, is a big drag to the economies of those
countries. The tolerable level of budget deficit is generally pegged at -3.0
percent of GDP. But some countries like the US, Canada, Japan, UK, France and
many other European countries have deficit ratio way above that level. This is
the main generator or creator of global economic instability in the past few
years. And this has repercussions on many emerging economies like the
Philippines.
The saving grace despite high fiscal irresponsibility of
many governments, is that aggregate savings and financial mobilization in the
private sector of many countries have greatly improved. So that while many
governments borrow like crazy, both short and long-term interest rates have
remained low. The private sector has ample savings to lend to governments even
at low interest rates. The Philippines’ private sector share this global trend
and characteristic.
Below is an interesting data on international reserves of
industrializing and emerging and markets from Asia, Europe, South America and
Africa. The huge reserves of economies in Asia can easily dwarf the reserves of
their counterparts in other continents, except for a few countries like Russia
and Brazil. The Philippines’ international reserves are in the lower bracket by
Asian standards, but in the medium bracket by European and South American
levels.
Table 2. Foreign
Reserves Including Gold, in $ Billion, 2013
* Excluding gold for China, Taiwan, Vietnam, Saudi
Arabia, Israel
Primary data source: Haver Analytics
Posted in The Economist, June 6th 2013, Foreign Reserves.
High reserves do not necessarily translate into fast
growth in the short term, but more of an insurance against high volatility and
instability in the international financial market in the medium to long-term.
Foreign reserves are counted in the capital account of an economy or country.
The four Asian tiger economies (Hong Kong, Korea,
Singapore and Taiwan) can be characterized also as having current account
surplus and high foreign reserves at the same time. It is the envy of many
countries and economies. Plus the fact that they have balance surpluses
(government revenues larger than expenditures) or low budget deficit, case of
Taiwan.
These economies may suffer low growth in the short-term
but in terms of hedging their economies from another round of financial and
economic turmoil that the world experienced over the past four years. The US
housing and fiscal instability in 2008-2010, Eurozone public debt turmoil in
2010-2012, starring especially the PIGS -- Portugal, Ireland, Greece and Spain.
The Philippines can capitalize on many favorable developments
in the region despite a weak overall global economic environment. These include
(a) rising investments and revenues in the business process outsourcing (BPO)
sector, (b) rising remittances from more skilled OFWs, and (c) rising interest
and revenues from tourism, including health tourism.
The country’s high and young population is a huge factor
for these favorable developments. Young and easily trainable manpower, not only
in the schools and universities but also on the job training and actual work
itself.
Dynamism and efficiency in the private sector compensate
for the inefficiencies, wastes and irresponsibility in the public sector, but
only up to a certain point. The Philippine government should bear this in mind
and learn lessons from the US and Europe and hence, watch its fiscal condition
with prudence and sensitivity to the Filipino taxpayers and entrepreneurs.
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