November 10th, 2022
By Rep. Joey Sarte Salceda (Albay, 2nd district)
Chairman, House Committee on Ways and Means
10 November 2022
I expect the economy to have grown between 7.5 to 7.8 percent, defying expectations and reflecting the overall shift in attitude from pandemic mode to endemic mode for COVID-19. This is upon our analysis of (1) data from the country’s traffic situation which is evidence of higher economic activity, (2) higher-than-expected OFW remittances, (3) the continuing boom in the services sector, especially the BPO sector and freelancing; (4) very good employment numbers in September; and (5) good tax performance, indicating that there is a growing tax base.
Particularly useful for our more bullish analysis is Google Mobility Reports (latest data being from October 2022, right after the end of the quarter. The figures show the Philippines as having the highest mobility growth (compared to baseline) in the entire Southeast Asia, leading to our view that the country is likely to have hit the highest growth rate in the region. The Philippines has recorded double-digit growth in all areas of mobility, the only one to do so in the region.
Part of this is “deferred economic activity,” due to stricter restrictions on mobility that we implemented over the past two years compared to other countries in the region. Undeniably, however, strong numbers in our BPO and freelancing sectors points to more than just base effects.
This is also the first quarter that can be attributed to President Marcos, whose shift in tone towards more openness to international cooperation, policy continuity, friendliness to business, and reaffirmation of our traditional international alliances, brings a sense of stability to domestic and international investors.
I also expect some strength in the agricultural sector, but this is partly due to the incentive among farmers to produce more as a result of higher market prices.
President Marcos’s actions to improve tourism are not yet baked in on the figures for the 3rd quarter. Given growth in consumer demand during the final quarter, I expect us to sustain a very strong full year figure for 2022. It is still possible to push for 8.0% GDP growth this year.
It also indicates that there is some room for monetary policy actions to preserve the country’s foreign reserves, such as maintaining the interest rate differential with the US prior to the current cycle of rate hikes. Governor Medalla has signalled that he intends to mirror the Fed’s hikes, point for point. We have kept a difference of 1.0 pp between our rates and the Fed’s rates, although we are still 75 bps behind our interest rate differential prior to the US Fed’s hike cycle. The growth figures give us a bit more space to catch up.
Nonetheless, there are also emerging economic conditions that we must respond to.
First, growth always produces some inflation. Aggregate demand is clearly on the upside. Given elevated price levels due to global circumstances, we must continue to focus on supply-side interventions: produce more and cheaper food, energy (especially renewable energy), and feeds. This will keep inflation from going higher than what the global conditions dictate.
We need to deal with inflation to keep growth high. We are in a high-inflation, high-growth period. That means there is a risk of growth being more challenging to sustain in succeeding quarters, as expansion becomes more expensive for both businesses and consumers.
I would also warn against overreliance on actions that reduce price without increasing supply, such as price ceilings. The only way to sustain growth in a high-demand environment is to meet it with enough supply. Otherwise, shortages will pose roadblocks to sustaining our growth trajectory.
Second, we need to bolster our ability to earn dollars. In this regard, the greatest opportunities are in the service sector’s Big 4: Tourism, BPO, OFW, and Micro-BPO (i.e. freelancers with foreign employers). We need fewer tourist restrictions, with aggressive marketing consistent with PBBM instruction towards “Filipino brand. We also need a policy environment that affirms the BPO sector. This includes work-from-home, and allowing seamless transition to BOIf.
For OFWs, we need fewer deployment bans, especially of healthcare workers. We also need to reassure our partner countries that we are continuously upskilling our workers.
For the Micro-BPO sector, or freelancers, we need more digital jobs trainings, assistance in documentary requirements (such as billing notices), explore providing computer terminals with internet in municipal libraries, and other such assistive measures. Data from jobs sites indicates that there could be as many as 1.5 million Filipino workers in this sector. I also suspect that growth from this sector is not yet being fully accounted for, and I will engage the PSA on this concern.
The Committee on Ways and Means takes some credit for creating the tax regime for Employee Stock Option Plans, which should boost the BPO and tech startup sector.
Third, we need to grow our exports. I am especially concerned about agricultural exports, such as banana, which faces some cost-competitiveness issues. Value-added in our manufacturing exports, especially electronics, needs to be boosted.
Fourth, the PSA implementing rules and regulations is already available for signing. I urge the agencies to sign and issue the IRR without delay – to boost our telecommunications and other structurally crucial sectors.
Fifth, PBBM’s land condonation and distribution plan would be his biggest policy win, if enacted within this year. It would also unlock credit and productivity in the agriculture sector. I urge my colleagues in the House and Senate to approve the measure as quickly as we can.
Along with ease of doing business reforms, such as the Ease of Paying Taxes Act, these would lift our existing constraints, unlocking more growth opportunities that would help us sustain strong 2022 growth numbers moving forward to 2023.