May 12th, 2022
The Q1 GDP growth figures are very strong, despite intermittent lockdowns on the demand-side, and supply chain issues, higher input costs, and other supply-side challenges. Together with FDI data in February, which shows a surge of 46.3% year-on-year from last year, this development is indication that there are tailwinds in our economic fundamentals that the next President can maximize.
There are clear challenges, however. The agriculture sector continues to lag other sectors, shrinking by 0.7 percent quarter-in-quarter. This continued underperformance will bear down on the price and availability of food, with implications on general prices and living conditions.
Among the major contributors to growth, the fastest grower was Transportation and Storage, which grew by 26 percent. I remain convinced that further lifting of existing restrictions on public transportation will boost this momentum and yield positive results for the overall economy. I reiterate my call for the lifting of bans and restrictions on provincial buses in EDSA. Provincial buses transport not only people, but also some volume of goods to and from Metro Manila. In the provinces, we call this the “factora” system. Some of these goods are used or sold by small businesses – which were and continue to be saviors of the economy.
GNI also increased by 10.7%, which indicates that our OFWs and exports are beginning to recover. This should be maximized: we should continue to encourage OFWs to invest in safe, secure, and productive private-sector investments. This will be crucial given the fiscal constraints of government.
Moving forward, I reiterate my three main recommendations for the first few days of the next President:
First, we need to focus on agriculture and food supply. This will require aggressively fighting inflation through yield-promotion, biosafety (especially given ASF and avian flu), and climate resilience.
Second, we need to strengthen our safety nets, to ensure that the most vulnerable among our population remain protected from shocks and are capacitated to remain productive.
Third, given the fiscal constraints of government, we will have to work on investor confidence in the Philippines. We have no choice but to fund capital formation with private investments, given the 12 trillion debt overhang.
A commitment to the Duterte administration’s fiscal and economic liberalization reforms, prudent fiscal management strategies, and a competent and widely-respected economic team will be essential to providing the incoming administration with the kind of adrenaline rush needed to offset this deficit of foreign investor confidence.