High growth imperative and fiscal consolidation
April 2, 2024 | 12:02 am
My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2024/04/02/584959/high-growth-imperative-and-fiscal-consolidation/
The Development Budget Coordination Committee (DBCC) composed of the Departments of Finance and Budget and Management (DoF and DBM), the National Economic and Development Authority or NEDA, plus the Bangko Sentral ng Pilipinas will announce the GDP growth targets for 2024 to 2028 this week. They will decide, among others, whether to keep the 6.5% to 7.5% growth targets made in the November 2023 meeting or revise them to 6% to 7%.
Personally, I wish that we would target 8-9% yearly growth because of our low per capita income — we need to raise it high enough in a short period. I believe 8-9% is becoming realistic as the global economic environment is not improving, it seems to be worsening. The continued high interest rate policy is not conducive for large business expansion, plus the high interest payments for our public debt.
Here are some reports on the Philippines’ growth prospects in 2024 as reported in BusinessWorld: “PHL to grow 6.4% this year — Fitch” (March 15), “Marcos says too early for rate cut, eyes 8% growth” (March 21), “GDP likely grew by 6.1% in Q1” (March 26), and, “S&P Global keeps Philippine GDP growth outlook for 2024, 2025” (March 27).
THE MADDISON PROJECT ON ECONOMIC HISTORY
I checked the database of The Maddison Project — made by a group of close colleagues of Angus Maddison (1926-2010), an economics professor at the University of Groningen, Netherlands, to continue Maddison’s work on quantitative macroeconomic history. Official macroeconomic records from a century or more ago are not available, so the Maddison Project made extrapolations and multiple benchmarks with economic and math methods to approximate such economic data, including for economies that were not autonomous back then like Hong Kong, Singapore, and Taiwan.
In 1870 — the earliest year with comparable data for many countries — the Philippines had a real GDP per capita (at 2011 US$) of $764. This rose to $1,845 in 1940, a year before Japan invaded the country during World War II. By 1950, it was down to $1,310.
We heard or read that the Philippines was the “second richest country in Asia after Japan post World War II.” This is not true. By 1950, four economies were richer than the Philippines: Singapore, Hong Kong, Taiwan, and Malaysia (see Table 1).
Today we hear saber-rattling and war mongering over Taiwan and the South China Sea, and that Philippine taxpayers and businesses must prepare to surrender additional trillions of pesos to the military and defense agencies — and their lobbyists — on top of trillions currently collected.
Look at the data on Japan in Table 1. Its per capita GDP in 1940 was $3,815. This shrank to $1,776 in 1945 (the end of World War II) and recovered somewhat to hit $2,519 in 1950. War preparations, if not going to war itself, will siphon precious resources, especially manpower, away from productive activities.
We should instead focus on more economic growth, not more war mongering; more public spending on infrastructure, not the public purchase of submarines and warships, jet fighters and missiles.
WATER, CLIMATE, AND DBM
There were three water-related reports in BusinessWorld last week: “SC rules dam water excluded from tax on national wealth” (March 24), “Chances of La Niña setting in by June now at 62% — DoST” (March 26), and “PHL needs more nature-based infra to mitigate flooding — OECD” (March 31).
The main problem in the Philippines and other tropical countries yearly is too much water — with lots of rain and the subsequent flooding — not the lack of water. For instance, from 2020 to 2023, which were characterized by a prolonged “triple dip” La Niña, there were 12 months of rain in the Philippines. We simply lack dams and catchment structures to store excess water and reduce flash floods downstream.
Budget Secretary Amenah F. Pangandaman recently unveiled two timely programs, the Support and Assistance Fund to Participatory Budgeting (SAFPB), and Water Supply and Sanitation (WSS) programs. The goal is to expand access to potable water and sanitation services in lagging municipalities nationwide. As Chairperson of the Philippine Open Government Partnership (PH-OGP), she has more leeway to encourage more LGU participation in this important program to optimize water storage and usage.
And last week, on March 25, the DBM held a coordination meeting for the National Government Rightsizing Program (NGRP). Secretary Pangandaman has endorsed and supported the NGRP since her first month in office in July 2022 as this program aims to enhance the government’s institutional capacity, streamline operations of different agencies of the executive branch, and right size organizational structures for improved public service delivery at lesser cost to taxpayers. Go for it, DBM.
FISCAL CONSOLIDATION AND SUBSIDIES TO GOCCS
Here are some recent reports in BusinessWorld related to fiscal consolidation: “Gov’t faces challenges in bringing down fiscal deficit” (March 15), “Recto’s proposal to sell NAIA land to raise funds draws mixed reactions” (March 20), “Double-digit growth in revenues, expenditures continues — DoF chief” (March 21), “2025 budget preparations ‘on track,’ DBM says” (March 21), and, “New taxes ‘last resort’ — Recto” (March 25).
The various government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs) are among the costly agencies that instead of contributing to the national coffer, rely on regular or occasional big subsidies. So, Finance Secretary Ralph G. Recto is correct in looking at the privatization of certain GOCCs to raise revenues and control the big annual subsidies. Which will give more leeway for Budget Secretary Pangandaman to reallocate resources on programs and agencies related to more infrastructure development.
The Philippine Health Insurance Corp. (PhilHealth) is the biggest subsidy dependent GOCC. Notable are three government energy corporations — the National Electrification Administration (NEA), the Power Sector Assets and Liabilities Management Corp. (PSALM), and the National Power Corp. (Napocor) — that continue to rely on subsidies when private generation companies and private distribution utilities are making money even while paying taxes (see Table 2).
These three energy GOCCs should go. The Electric Power Industry Reform Act (EPIRA) of 2001 (RA 9136) mandates that power generation should be competitive and privately run so PSALM and NPC have little or no justification to continue existing. Electric cooperatives monitored and administered by the NEA should not be getting subsidies.
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See also:
BWorld 691, On a huge budget surplus and long-term privatization revenues
BWorld 692, 10 lessons from the PHL Nuclear Trade Mission to Canada
BWorld 693, On Earth Hour, Lenten travel, and Pinoys in Toronto
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