Santos emphasized that economic indicators show the country is surprisingly surviving amid the grave impact of constant increases in world crude oil prices and varied issues hounding the government.
In his mid-year summary of the country’s economic performance, Santos said the Gross Domestic Product (GDP) has grown by 4.7 percent from last year while the Gross National Product (GNP) has grown to as much as 4.8 percent in the first six months of 2005.
The socio-economic planning secretary explained that the GDP growth came as a surprise as oil prices continued to rise, causing inflation and lower consumption that should have meant a lower GDP.
The NEDA chief stressed that the economy’s relatively quick recovery from the crises can be attributed to the influx of remittances by overseas Filipino workers (OFW), which could reach $10 billion by December, an estimate based on records of the Bangko Sentral ng Pilipinas (BSP).
"Should there be a slowdown in the economy, the OFW remittances will surely make up for it. They are our economy’s counter-force as they boost consumption which prods up the GDP," he explained.
Santos said the country’s economy is relatively better than those of its neighboring, oil-importing Asian countries. The Philippines’ 4.8-percent growth rate in GDP for the second quarter of 2005 is better than Thailand’s 4.4, Malaysia’s 4.1, South Korea’s 3.3 and Taiwan’s 3.0 percent.
Foreign direct investments have also tripled in the first half of the year, reaching more than $495 million, despite the ongoing political tension involving allegations against President Arroyo.
Santos emphasized that for the first time in the last four years, the government recorded fiscal surpluses in April, June, and August, which can be attributed to the government’s austerity measures.
The agriculture sector, which has suffered from the El Niño phenomenon in the past months, grew by 1.8 percent in the second quarter from a 0.1-percent decline in the first three months.
The industrial and services sectors also grew by 1.8 and 6.1 percent, respectively, while transportation sector sales also grew to 24.6 percent with the Metro Rail Transit and Light Rail Transit earning 23 percent more than the last quarter. The tourism industry also registered a 17-percent growth boost from January to July on the back of Korean arrivals.
Meanwhile, the mining and quarrying industries showed a growth trend following a Supreme Court decision allowing foreign investors in the sector. These sectors have significantly recovered from a 4-percent decline in the first quarter to a 14-percent increase in the second quarter.
Santos reported that call centers are seen to grow by as much as 60 percent by the end of the year and are expected to continue to double every year. He also confirmed that the real estate industry is booming, with the lowest vacancy rate — at eight percent — recorded in 15 years.
Finally, Santos said the country’s unemployment rate fell from 11.8 percent last year to 10.9 percent for the first seven months this year. These indicators, he said, signaled that the economy would grow even more by yearend.
"We are looking at a growth target of 5.7 to 6.3 percent next year basically because of higher oil prices," Finance Assistant Secretary Gil Beltran said in an interview. The government earlier forecast a growth of 6.3 percent to 7.3 percent, he said.
The government also raised next year’s inflation forecast to 7.5 percent, from an earlier forecast of four to five percent, Beltran said.
The 2006 growth estimate is based on an exchange rate of P55 to P57 per US dollar and an average 91-day Treasury Bill yield — the benchmark for bank lending rates — of 5.5 percent to 6.5 percent.
Santos admitted that NEDA’s own growth projection of 5.3 percent this year and six percent next year could be dampened by two factors: sustained increase in crude oil prices and an increase in US interest rates, which he said could weaken foreign investments to the country and curb growth.
Based on simulations made by the NEDA, growth targets for 2005 could drop to 5.2 percent if the price of Dubai crude hits $60 per barrel. In the same way, GDP is expected to go down to 5.1 percent while inflation levels will hover at eight to 8.1 percent if Dubai crude reaches $70.
So far, the price of Dubai crude for September averaged only $56.47 per barrel.
Earlier, the Asian Development Bank (ADB) lowered its growth forecast for the country from an average five percent to 4.7 percent, citing the rise in world oil prices as the main culprit. It has also revised its forecast for 2006 from five percent to 4.8 percent.
VAT impact
The government is still in limbo as to the impact of the suspension of the expanded value-added tax (EVAT) on the government’s revenue next year.
Beltran said the proposal to defer to June 2006 the implementation of EVAT on oil and power would definitely have an impact on the economy as the government expects to raise about P22 billion from EVAT on these sectors. A six-month delay in its implementation easily means P11 billion in revenue shortfall.
However, Beltran said the Department of Finance has come up with a list of possible measures to cover for the foregone revenues due to the possible postponement of EVAT’s implementation.
He declined to disclose details on these measures, though, saying instead that they are still hopeful that the VAT reform law will be upheld by the Supreme Court.
With revenues from EVAT, the government expects total revenues to reach P968 billion in 2006, P1.06 trillion in 2007, P1.19 trillion in 2008, P1.29 trillion in 2009 and P1.44 trillion in 2010.
Capital outlay for 2006 is also expected to increase to 2.7 percent from two percent this year.
Meanwhile, the Freedom from Debt Coalition (FDC) is alarmed that the country now has approximately P3.81 trillion in foreign and domestic debt.
In a forum held in San Juan yesterday, FDC disclosed that the Arroyo administration has incurred the biggest debt among other administrations at P2.33 trillion in just four years. Comparatively speaking, President Corazon Aquino borrowed only P383 billion during her six-year term while President Fidel Ramos borrowed P401 billion also during his six-year term. Meanwhile, deposed President Joseph Estrada’s three-year administration incurred P725 billion in debt.
FDC president Princess Nemenzo said these figures were taken from records obtained from the Department of Budget and Management.
The FDC charged that the Arroyo administration’s strategy is to borrow money to pay off loans, which only increases interest rates. Nemenzo also noted that the budget is also mostly used to pay off debts.
The government has presented a debt-for-equity proposal to the United Nations Global Summit in New York as a way of addressing the mounting debt problems not only of the Philippines but of middle-income and poor countries.
The same proposal will also be presented to the boards of the International Monetary Fund, the World Bank, Latin American Bank, African Regional Bank, the Paris Club and the OPEC Fund. — With reports from Donnabelle Gatdula, Ted Torres, Sandy Araneta