Quiz on June 17, 2013, Monday covering the content here: The Philippine economy expanded by 6.6 percent in 2012, exceeding most expectations, including the government’s own target of 5 to 6 percent. Higher growth was driven by strong private consumption and construction, and the recovery of public spending and net exports. Philippine growth in 2012 was the highest among the ASEAN-5 countries. With higher public and private construction spending, the ratio of fixed capital to GDP (net of intellectual property products) increased from 18.7 percent of GDP in 2011 to 19.3 percent of GDP in 2012. The pace and efficiency of national government spending improved remarkably in 2012. Total disbursements grew by 14.1 percent to reach PHP 1.78 trillion, equivalent to 16.8 percent of GDP. The highest increases were seen in infrastructure spending, and maintenance and other operating expenditures. With a more efficient bidding, implementation, and payment system, infrastructure spending increased by 58 percent. Maintenance and other operating expenditures grew by 28 percent and reflected higher allotments to social services, such as the conditional cash transfer program, and economic services, such as irrigation. Higher government spending was matched by a significant increase in revenue collection, with a strong contribution from improved tax administration. Total tax revenues grew by 13.2 percent and tax effort increased from 12.3 to 12.9 percent of GDP—the highest increase in decades attributable to improved tax administration. The medium-term growth prospects for the Philippines are good. The country has weathered the impact of the financial crisis and global slowdown quite well in the last four years, given its strong macroeconomic fundamentals—the result of past and on-going reforms in the financial and public sectors. The country’s strong growth prospects, robust external accounts, and improving fiscal condition earned it its first ever investment grade credit rating in March 2013, followed by another upgrade in May 2013. With stronger economic reforms, the Philippines can see sustained growth of above 6 percent in the medium-term. Risks to growth will primarily come from a slower global recovery, domestic reform lags caused by increased resistance to reforms, and possible asset price bubbles in the real estate sector and the stock market. GDP growth is projected at 6.2 percent in 2013, driven by domestic demand. As in previous years, private consumption would provide the basis for growth. Sustained increase in investment, particularly in construction, and higher public spending, would provide an extra boost. Growth in exports would hinge on the recovery of electronics exports and higher growth of non-electronics. The economic growth projection of 6.4 percent in 2014 would depend on the ability of the government to further increase infrastructure spending and the private sector to increase investment spending. Moving forward, the government needs to focus its attention on generating higher, sustained, and more inclusive growth—the type that creates jobs and reduces poverty. With almost 10 million unemployed or underemployed Filipinos as of end-2012, around 1.1 million 5 potential entrants to the labor market each year, and poverty incidence that hardly declined between 2009 and 2012, the country faces the enormous challenge of providing good jobs to 14.4 million Filipinos through 2016. Sustaining high GDP growth of above 5 percent will be able to provide good jobs to around 2.2 million Filipinos between 2013 and 2016. However, by 2016, that still leaves 12.4 million Filipinos who will have no other option but to work abroad, work in the informal sector, or create jobs for themselves. There is no silver bullet for creating more and better jobs, as it is linked to resolving deep-seated, structural issues in the economy. Only a comprehensive reform agenda implemented across sectors can foster a business environment conducive to private sector job creation by firms of all sizes. Meeting the jobs challenge requires expanding formal sector employment even faster, while rapidly raising the incomes of those informally employed. The following thematic reform areas deserve the highest priority: i) simplifying business rules and regulations to encourage the growth of firms of all sizes, ii) enhancing competition in the economy, giving priority to sectors with the greatest potential in creating jobs, such as agriculture, and iii) securing property rights on land for both rural and urban dwellers and businesses. To better sustain these reform efforts and to increase their chances of success, the government will need to continue to invest more, and more efficiently, in health, education, and infrastructure. Higher investments can be sustained by institutionalizing reforms in public finance. In this regard, a comprehensive program of tax policy and administrative measures should be pursued to raise tax revenues by up to 8 percent of GDP. The government’s medium-term target of an additional 3 percentage points of GDP by 2016 is on the right track. Higher revenues need not be equated with higher tax rates as tax administration can be improved substantially. For instance, in the first quarter of 2013, the Bureau of Internal Revenue announced a campaign to boost tax collection from self-employed and professionals (SEPs) such as doctors, lawyers, and traders. The government estimates that only about 403,000 out of 1.8 million SEPs paid taxes and the average income declared by SEPs is not far from the income of a minimum wage worker. Successful implementation of this campaign can generate up to 2 percent of GDP in tax revenues without raising tax rates. A unique window of opportunity exists today to accelerate reforms that will help create more and better jobs. The country is benefiting from strong macroeconomic fundamentals, political stability, and a popular government that is committed to improving the lives of the people. It also stands to benefit from the global economic rebalancing and strong growth prospects of the East Asia region. Several reforms have successfully started, notably in public financial management, anti-corruption, and social service delivery. With stronger economic reforms, especially in areas that will have more impact on the lives and jobs of the poor, the government can put the country on an irreversible path of inclusive growth and meet the jobs challenge.
Posted on: Fri, 14 Jun 2013 03:47:34 +0000
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