Eased restrictions, quickened inflation, record debt, sustained growth

MANILA — The first year of the administration of President Ferdinand Marcos Jr. saw COVID-19 restrictions further eased, inflation hitting 14-year highs, government debt hitting a fresh record, and economic growth outperforming expectations.

The reopening of the economy after more than 2 years of harsh pandemic restrictions was the main focus of the first year of the Marcos administration.

The policy on the mandatory wearing of face masks was removed for the first time since the pandemic started. Face-to-face classes resumed, and most workers returned to onsite work. Restrictions on travel were further eased leading to a boom in tourism.

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Tourist arrivals surged from 254,309 in June to 434,227 in December. For the whole of 2022, tourist arrivals hit 2.65 million according to Department of Tourism data, giving much relief to a sector that was badly battered by the pandemic.

All of these contributed to the country’s remarkable Gross Domestic Product (GDP) growth rate of 7.6 percent in 2022– the highest annual expansion in over four decades.

This was above the government’s own target of 6.5 to 7.5 percent growth for the year, and the World Bank’s forecast of 7.2 percent growth.

Economic managers trumpeted this, saying the Philippines was among the fastest-growing economies in the region.

Some meanwhile pointed out that this growth however came on the heels of a low base in 2021, when the economy grew 5.7 percent, which itself followed the 9.5 percent contraction in 2020 amid harsh COVID-19 mobility restrictions.

Still, RCBC Chief Economist Michael Ricafort hailed the government for reopening the economy which allowed the country to bounce back quickly from the pandemic.

“Nagbukas pa ekonomiya, wala na restriction. On the first year- key highlight yun, talagang pinarioritize pagbukas ng ekonomiya,” he said.

(The economy reopened, no more restrictions. On the first year, that is a key highlight. The economy was really prioritized.)

SUGAR AND ONIONS

But while the reopening was taking place, President Marcos and his administration had to face another challenge–inflation.

Prices of most goods surged, with inflation hitting 8.7 percent in January this year — the highest in 14 years.

Government officials attributed this mostly to external factors such as the war in Ukraine which affected global trade.

World oil prices surged, pushing the costs of other globally traded commodities higher.

Inflation, according to Marcos, was largely “imported.”

Economist Emmanuel de Dios however said that while external conditions contributed to inflation, the government still mishandled the situation.

De Dios noted that in the first three months of 2023, Philippine inflation was still “inordinately higher” compared to other countries.

According to De Dios, there was “something extra” added to the inflation rate of the Philippines which averaged 8.3 percent in the first quarter, compared to Malaysia’s 3.6 percent, Indonesia’s 5.2 percent, and Vietnam’s 4.2 percent.

“Why did other countries have lower inflation rate by first quarter of this year compared to the Philippines? And the reason is mismanagement of many or a few agricultural commodities,” he said.

Food prices, particularly of sugar and onions, continued to surge in the latter half of 2022.

This was happening even as world oil prices, along with other commodities had begun to stabilize in the second half of 2022.

De Dios said these price increases had nothing to do with the war in Ukraine.

“It’s a combination of bureaucratic inefficiency and a malign intent on the part of certain agencies,” he added.

De Dios said importation could have helped of sugar and onions could have helped stabilize prices if they had been done in time.

Inflation has eased since the first quarter, slowing to 6.6 percent in April and 6.1 percent in May.

Part of it was due to easing supply conditions as imports filled the shortages, and domestic production started catching up with demand.

Part of it was also due to aggressive monetary policy tightening by the BSP, with the benchmark Interest rate being hiked to 6.25 percent from only 2.25 percent in June last year.

JOBS AND JOBLESSNESS

Employment data from the Philippine Statistics Authority meanwhile showed that the Philippine job market had also bounced back from lows hit during the pandemic lockdowns.

The unemployment rate in April dipped to 4.5 percent from 4,7 percent in April, according to the PSA.

The quality of jobs has also improved as shown by the underemployment rate falling to an 18-year low of 11.2 percent in March, the PSA said.

An independent research firm however said joblessness was much higher at 19 percent of the labor force as of March,

The Social Weather Station said its study also showed that almost 7 out of 10 Filipino workers had difficulty finding jobs.

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DEBT AND TAXES

Over a trillion pesos of debt has been added since Marcos took office. The national government’s outstanding debt hit P13.91 trillion in April- the highest ever recorded.

However, this is not necessarily worrisome according to De Dios.

“You have to be careful not to be too alarmist about the issue,” he said.

He said there is nothing wrong with debt, as long as the economy is growing and debt is paid regularly. De Dios noted that other countries have even higher levels of debt

“Debt is suitable if the growth rate of the country exceeds the interest rates, then debt is not runaway debt, you can stabilize debt,” said De Dios.

Ricafort meanwhile said the government clearly needs to raise more revenues.

“Kailangan pa rin talaga paigtingin yung tax collection going forward. Yung mga tax reform measure, lalu na paigtingin from existing taxes, syempre yung new taxes na proposed, pati yung higher tax rates.”

The government plans to raise new taxes like an excise tax on single-use plastics, VAT on digital services, and raising road users’ tax, among others.

National Economic and Development Authority Secretary Arsenio Balisacan said the economy’s performance amid all of these conditions is remarkable.

“How the economy is able to withstand global downtrend and how we remain the best-performing economies in the region, I think that’s a major achievement,” Balisacan said.

The BSP meanwhile had a cautionary note during its last policy meeting.

It said inflation may still rise “due to the potential impact of additional transport fare increases and minimum wage adjustments, persistent supply constraints of key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on agricultural prices.”

Growth may also slow down following the BSP’s interest rate hikes “as well as weak global growth prospects.”

A BSP report also showed that consumers were less confident for the next quarter and the next 12 months.

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