Diokno: Philippines on way to full recovery

MANILA, Philippines — The Philippines is on its way to full recovery, as the pace of economic growth is expected to further accelerate in the second quarter of the year, according to outgoing Bangko Sentral ng Pilipinas Governor and incoming Finance Secretary Benjamin Diokno.

Diokno, in a speech during the launch of the World Bank’s Philippines Economic Update, said the country’s gross domestic product (GDP) growth is expected to pick up further from April to June.

“We expect the economy to grow much faster in the second quarter, making the growth target for this year of seven to eight percent doable,” Diokno said.

After exiting the pandemic-induced recession with a GDP expansion of 5.7 percent last year, as the economy further reopened, the country booked a stronger-than-expected growth of 8.3 percent in the first quarter of the year.

The Philippines slipped into recession, with a GDP contraction of 9.6 percent in 2020 as the economy stalled when the government imposed one of the strictest and longest COVID-19 lockdowns in the world.

From a peak of 17.6 percent in April 2020, Diokno said the country’s unemployment rate is now down to 5.8 percent as of March and is close to its pre-pandemic level.

Diokno said that economies with strong fundamentals tend to handle crises better.

“In the case of the Philippines, it entered the pandemic with strong macroeconomic fundamentals,” he said.

Diokno added that foreign direct investments went up by eight percent to $1.7 billion in the first two months of the year after jumping by 54.2 percent to hit an all-time high of $10.5 billion last year.

“Record-high net FDI inflows in 2021 underscore investor confidence in the country’s long-term growth prospects,” Diokno added.

According to the incoming finance secretary, there has been a solid improvement in manufacturing, with the purchasing managers’ index (PMI) strongly rebounding to 54.1 percent in May.

Diokno said the strong rebound in domestic economic activity and labor market conditions in the first quarter has provided scope for the BSP to start rolling back its pandemic-induced interventions.

According to him, the national government has fully settled its provisional advances to the BSP ahead of schedule. The central bank initially extended P540 billion in non-interest bearing loans to the national government that was scaled back to P300 billion at the start of the year.

The BSP, Diokno said, has also  progressively reduced its purchases of government securities in the secondary market.

“Later, the BSP has decided to reconfigure its government securities purchasing window from a crisis intervention measure into a regular liquidity facility under its interest rate corridor framework,” he said.

To curb rising inflationary pressures from soaring global oil and commodity prices due to the Russia-Ukraine war, the central bank’s Monetary Board started its interest rate liftoff by delivering a 25 basis points hike last May 19, the first in more than three years or since November 2018.

“The BSP is prepared to respond to a sustained build-up of inflation pressures and second round effects that can disanchor inflation expectations. Nevertheless, non-monetary measures by the national government remain a key response to price pressures from higher global commodity prices,” he said.

To sustain growth, the outgoing central bank governor said the government has pursued game-changing reforms that would make the Philippines a preferred investment destination by investors.

These include the enacted Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law to make the country more competitive with its ASEAN neighbors, as well as the amended Retail Trade Liberalization Act, the Foreign Investments Act, and the Public Services Act, to further open the Philippines to foreign investors.

Diokno also noted the continued improvement in the sentiment of consumers and businesses.

“Given all these positive developments, we are optimistic that the Philippine economy will do better this year,” he added.

Like the rest of the world, Diokno said the Philippines also faces risks to its growth outlook, including the resurgence of the COVID-19 virus and a prolonged Russia-Ukraine conflict.