May 24th, 2022
House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that a serious government effort to gain more revenues from oil and gas exploration, as well as higher mining output, will be “crucial in helping the country barrel through what is shaping up to be a high-inflation decade.”
“It’s increasingly looking like this decade will be a decade of elevated inflation. That’s not just a local issue. In many ways, the Philippines looks much better than much of the rest of the world. The US, for example, looks like it’s in stagflation. The global inflation rate is 9.2% last quarter, while the Philippine rate is just 4.0 percent during the same period,” Salceda said.
“But it’s still going to hurt, because the average inflation over the past ten years is just under 3%. The average over this decade is going to be closer to 5% or more per year.”
“And, other than doing no more harm, there’s not much we can do about it, since most of the price increases are from external prices such as petroleum prices. Commodities will have high prices over this decade. That’s going to be a global trend.”
“The only way to balance that out is to increase our output of commodities, so our farmers and domestic commodities sector benefits from high prices. That’s why expanding current output in agriculture and mining, as well as generating new output from oil and gas resources, will be crucial both for the next administration and the one after that,” Salceda added.
“One estimate says that we have as much as USD 26 trillion in untapped hydrocarbon deposits within our exclusive economic zone. We also have around USD 1 trillion in untapped mineral deposits in the country. The agricultural potential of the Philippines is also at around USD 112.8 billion in value-added every year if we are able to produce efficiently in our agricultural lands.”
“Right now, actual agricultural value added is just at USD 35.6 billion or just 31.5% of our viable agricultural potential. And mind you, my estimate is very conservative, using just 80% of our agricultural land,” Salceda added.
“On mining, nickel prices will remain elevated due to the mineral’s value in electric vehicles. Of course, gold will always be a safe haven for some investors when inflation is high, so our gold output will also help us benefit from these high global prices.”
Lessons from the past
Salceda also said that the next administration can learn from “lessons from his father’s administration.”
“Our economy grew faster than practically any other time in our history from 1973 to 1978 by benefiting from high commodities prices. Average GDP growth rate during that growth spurt was 9% every year. So, some people view it as an economic golden age.”
“But the lesson to be learned there, and I think President-elect BBM would heed that lesson, is not to use all of these revenues as current budget support, but to set some aside for when the prices inevitably fall in the future,” Salceda added.
“So, I would suggest that we harmonize our tax and production sharing agreements on oil, gas, and mining, and set up a Natural Resource Trust Fund that we can invest and use in the future. Extractives are non-renewable sources, so the global best practice is really to continue benefiting from them by investing revenues from these sectors. That’s the Norway model, whose oil fund is the world’s largest pension fund,” Salceda, who used to be a former international investment manager, said.
“That idea was relatively new in the 1990s, around the time I was in the markets as a fund manager for some global banks. The Oil Fund, in fact, was set up just in the 1990s. That came after the elder President Marcos. So, it’s something the younger President Marcos can learn from history. And I’m sure that Speaker Romualdez, who is my fellow principal author of the Natural Resource Trust Fund under the proposed fiscal regime for mining, will also counsel him wisely on this matter,” Salceda added.