The economy

The world economic outlook is bleak – this year, next year, in fact, over the next five years, if you believe experts of the World Bank and the International Monetary Fund.

I use the word “expert” liberally. The World Bank (with 187 member-countries) and the IMF (with 190 member-countries) are lenders of last resort of nations and their governments. They are supposed to promote growth, stability and prosperity. Instead, it has been a roller coaster ride for many countries, economically. More than 800 million people are hungry and more than 800 million are dirt poor, earning less than $2 a day.

The IMF in the late 1990s lent $11 billion to Russia to prop up its economy. Most of the money disappeared and what appeared is a guy named Putin who 16 months ago invaded Ukraine. Talk about eliminating despots and dictators from the face of earth. Today, there are more despots and dictators than there were 20 years ago. Anyway, I am digressing.

The bleak outlook, says Finance Secretary Benjamin Diokno, “is due to the compounding effects of the recent banking turmoil, high inflation, Russia-Ukraine war and lingering impacts of the pandemic.” In 2010 to 2019, the world economy was growing by 3.7 percent per year.

“The bleak global economic outlook for 2023 is largely due to the weak economic growth of some advanced and major economies – including the US, UK, Germany, Japan and China – in the first quarter of 2023.”

Diokno briefed a group of senior newsmen last Saturday at breakfast.

Not to worry, assures the head of President Marcos Jr.’s economic team. “The economy is strong, resilient and sustainable,” he declared. “Our macroeconomic fundamentals remain intact and we are poised to outperform our regional peers.”

This year, the economy is projected to grow by 6 percent, and by 6.5 to 8 percent from 2024 to 2028.

For the Philippine economy’s strength, we must thank three things: One, our consumers – you, me, they – numbering 114 million. They just keep spending like there is no end to money. About P72 (72 percent) of every P100 of economic production comes from consumer spending. The ratio reached as high as 78.8 percent in 2022. Households spend at the rate of seven percent, twice the rate government does, three percent.

Two, the government is also a big spender, accounting for up to 10 percent of GDP. The government has P5.7 trillion of budget and P13 trillion of debts, a total of P18.7 trillion, 78 percent of a projected GDP of P24 trillion. Imagine that: Nearly P80 of every P100 of GDP is spent by just two million bureaucrats.

Three, inflows of dollars. Our OFWs remitted $32.5 billion (P1.82 trillion at P56 to $1) in 2022, up 3.6 percent. Earnings from business process outsourcing (BPOs or call centers) hit $27.5 billion (P1.54 trillion), up 9.1 percent. BPO dollars will rise to $29.78 billion this year, up 8.3 percent.

Now, $32.5 billion plus $27.5 billion is $60 billion of value-added money.  That’s three times what Vietnam gets in foreign direct investments (FDIs) or $20 billion yearly. Vietnam is the darling of foreign investors in ASEAN.

So who needs foreign investors when the country gets $60 billion yearly? In attracting FDI, the government spends a lot of money – in tax and other incentives foregone.

But we do have FDIs – $9 billion in 2022 and 2023 and $11 billion in 2024, according to Diokno.

The structural reforms to liberalize the economy and favorable prospects of the economy are expected to sustain the inflow of FDIs.

Gross international reserves remain stable at $100.6 billion at end-May 2023, worth 7.4 months’ worth of import cover, more than twice the minimum three months.

International reserves are like a country’s checking account against which you charge imports, debt payments, profit remittances of foreign investors and your travels.

The balance of payments (overall foreign exchange transactions, inflow minus outflow) will narrow to 3.4 percent of GDP in 2023 and 3.2 percent in 2024, from 4.4 percent in 2022. In the first quarter 2023, the BOP was in surplus, of $3.5 billion, thanks to OFW remittances, state foreign borrowings and FDIs.

Said the economic czar in his briefing to us:

“The Philippine economy grew by a robust 6.4 percent in the first quarter of this year despite an uncertain global outlook and elevated inflation. This came on the heels of our record-high 7.6 percent full-year growth in 2022.

“Our growth is supported by domestic demand, which contributed 8.3 percentage points to the real GDP growth. The contribution of domestic demand is led by household consumption at 4.8 percentage points, fueled by improving labor conditions and pent-up demand. Investments or gross fixed capital formation contributed 2.6 percentage points, driven by construction.

“On the fiscal side, revenue collections for the first five months of the year improved to P1.6 trillion, up by P155.6 billion or 10.8 percent compared to the same period last year.

“Unemployment remains low. The unemployment rate in April 2023 settled at 4.5 percent from last year’s level of 5.7 percent.

“Underemployment rate dropped to 12.9 percent, lower than the 14 percent recorded in April last year.”

Inflation for 2023 will narrow to 5 to 6 percent from the previous assumption range of 5 to 7 percent. This is partly due to the consistent deceleration in headline inflation. Core inflation (minus food and energy) “remains sticky but has eased to 7.7 percent in May from 7.9 percent in April.”

For now, the central bank will keep its policy rate of 6.25 percent, which came from 2 percent.

Oil prices are dropping, to $75.98 per barrel for Brent, from $95.76 in February 2022, a drop of almost $20 a barrel or 21 percent.

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