PH economic resilience depends on concerted effort
Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. the past week sent all the right signals concerning the Philippine economy’s prospects in the face of looming external threats. This is reassuring, but only if our leaders in other parts of the government follow the BSP’s lead in taking proactive and cooperative steps to maintain the country’s economic health.
In a press briefing on Monday, Espenilla detailed the relatively stable position of the economy in terms of fundamentals, policy direction, and buffers against external shocks: the country’s debt position is very good; the BSP has begun to act aggressively to curb inflation, and tax reform is progressing; underlying these stable indicators are the safety nets of abundant foreign reserves and a healthy banking system.
In his role as chairman of the interagency Financial Stability Coordination Council (FSCC), Espenilla later followed this up with details about how economic policymakers could strengthen the economy even further: strengthen long-term finance and improve valuation practices for market instruments.
These are expected to improve the government’s debt position even further and contribute to financial market stability.
It is well that Espenilla addressed the potential external risks to the Philippines because the economic environment across much of the rest of the world is becoming positively alarming. A rapid decline in the value of emerging market currencies led by the collapse of the Turkish lira over the weekend has rattled financial markets, our own Philippine Stock Exchange index being no exception.
Unexpectedly weak economic data released by China this past week fueled concerns that its trade war with the US is having a bigger impact than anticipated on the world’s two largest economies. Incendiary rhetoric from US President Donald Trump has put the US and Europe at odds over economic sanctions imposed on Iran, threatening both an expansion of the trade conflict and upward pressure on oil prices already at risk because of Saudi shipping restrictions in the Red Sea due to the ongoing war in Yemen.
To an outside observer, the Philippines’ position appears quite tenuous. Like the countries that have also seen currency declines – Turkey, South Africa, Indonesia, India, Mexico and Brazil, among others – the Philippines needs foreign capital, primarily the US dollar. The Philippines is also experiencing higher than expected inflation and a trade deficit.
While monetary authorities appear to be on top of the situation, their efforts are at risk of being undermined by divergent intentions among other parts of the government.
The biggest domestic threat right now is the still pending final passage and approval of the 2019 national budget. The Duterte administration, backed by the Senate, is favoring a change to a cash-based budgeting system, while the House of Representatives, from where the General Appropriations Act will originate, has rejected this in favor of maintaining the familiar obligation-based system.
On balance, the obligation-based system is more reliable given the current state of budget management in the Philippines, but either system can work well if managed cleanly and competently.
The budget hearings in both chambers of the legislature have been put on hold for now pending revisions to reconcile their differences and achieve the best version, until August 28, when they are set to resume deliberations.
Policymakers and lawmakers may have already been told to set aside their narrow perspectives and reconcile their differences as the global economic environment become increasingly challenging.
Given the slowdown in the country’s economic growth to 6 percent in the second quarter of this year from 6.6 percent in the first quarter and 6.7 percent a year earlier, it is imperative for the legislature to resolve the impasse over the budget now.
The executive and legislative branches of government cannot botch the momentum of growth the economy has worked hard for and achieved over recent years. We cannot afford any further delay and risk a reenactment of this year’s budget for next year’s government operations, because that would mean a significant setback to many of the administration’s plans.
Pass the 2019 budget as quickly as possible.
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