President Rodrigo Duterte Road to Prosperity.
Philippines President Rodrigo Duterte came to power two years ago pledging not only to tackle law and order, which he has been doing with his controversial war on drugs, but also to improve the living standards of millions of his people. One of his main aims was to achieve upper-middle income status for his country by 2022 — something it is “poised” to do, according to the World Bank, due to its strong economic growth. On Monday, Mr Duterte will deliver his third state of the nation address, and to mark the occasion the Financial Times has looked at the numbers behind his economic policy. Growth and the gap between rich and poor After taking office, Mr Duterte’s administration released a 10-point socio-economic agenda promising to invest heavily in roads, bridges and other infrastructure, streamline the tax system, improve competitiveness and continue previous governments’ prudent fiscal, monetary and trade policies. Economic data show that while infrastructure spending is rising, the building projects are moving ahead slowly. Higher government spending is contributing to widening trade and fiscal deficits and a surge in inflation.
The Philippines is expected to be one of Asia’s fastest-growing countries this year, alongside China, India and Vietnam. Its economy expanded at an annual average of 6.3 per cent between 2010 and 2016. But despite strong growth, the number of poor people remains high. One in five Filipinos are in poverty — a number Mr Duterte’s government promised to reduce to 15 per cent by the end of his term in 2022. The Philippines has a larger percentage of people living in poverty than its poorer Asean neighbor Vietnam. “Inclusive development has been the main thrust of the economic agenda of the Duterte administration, but two years in, the unemployment and poverty numbers have barely budged,” said Richard Javad Heydarian, a political analyst and author. Infrastructure spending Poor infrastructure has historically harmed economic progress in parts of the Philippines and over-concentrated the economy in the capital, Manila. Under the slogan “Build Build Build”, the Duterte government promised to spend 8tn-9tn pesos ($149bn-$168bn) on roads, bridges and other infrastructure and to increase infrastructure spending to at least 5 per cent of gross domestic product by the end of the president’s six-year term. Two years into Mr Duterte’s presidency, the Philippines continues to score poorly compared with its regional peers in terms of perceived quality of infrastructure.
However, infrastructure spending has increased during Mr Duterte’s tenure and is rising as a percentage of GDP. Spending on infrastructure projects has more than doubled and become the second-largest source of government outlays.
“Financing infrastructure has been one of the biggest achievements of this administration,” said Alvin Ang, director of economic research at Ateneo de Manila University. “Many of the projects were planned by the previous administration, but this time they pushed to get money into the budget.” Nonetheless, while the numbers show a surge in spending — and economists and businesspeople say that Build Build Build is off to a promising start — they also say ambitious projects are often delayed in their implementation. Some projects have faced bureaucratic or procedural hurdles. So far, the most obvious result of increased infrastructure spending is a widening trade deficit since Mr Duterte took office “due to surging imports of capital goods linked to construction of public infrastructure”, Jean-Philippe Pourcelot, an economist at FocusEconomics, wrote in a recent note.
Competitiveness, tax policy and economic management Mr Duterte, who had a strong record of attracting investment while mayor of Davao city, has promised to cut red tape and make it easier to do business in the Philippines. However, the country’s competitiveness, as measured by the World Bank’s score on the ease of doing business, remains below the regional average.
Due to previous administrations’ economic reforms, Philippine and foreign businesses have been able to count on stable economic management after years of double-digit inflation. However, many of these indicators are now heading the wrong way. One of the Duterte administration’s cornerstone policies is the Tax Reform for Acceleration and Inclusion (Train) Law. Train was intended to reduce the tax burden on poorer Filipinos and tap new sources of revenue by shifting some of the onus from personal incomes to goods through new duties collected on oil, sugary drinks and motor vehicles.
However, higher levies have helped to fuel inflation, which in June reached 5.2 per cent — the highest rate in almost a decade — and a weakening of the peso, which is now trading at its lowest against the dollar in more than 10 years.
The verdict Many of the millions of working- and middle-class Filipinos who voted for Mr Duterte will not be feeling better off due to higher inflation. Satisfaction with efforts to combat inflation has dropped rapidly since Mr Duterte took power, according to SWS, a national pollster. Many of Mr Duterte’s policy planks, including greater infrastructure spending, will take years to come through the pipeline. To speed up infrastructure plans, said Mr Ang, the Philippines needed another set of reforms to help bring projects to completion faster and to make doing business easier. Until then Filipinos are unlikely to conclude that Mr Duterte has improved their lot. “I would say the glass is two-thirds empty and one-third full,” said Mr Heydarian. “Credit them for ambition and a bit of audacity, but if you’re really going to judge Duterte on macroeconomic performance, I don’t think he’s done as well as the Arroyo or Aquino administration.
Source: The Financial Times
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