Richard Heydarian, columnist, in his Horizons column in Philippine Daily Inquirer (July 26, 2022)
Summary by Alejandro Reyes (Photo credit: PNA)
The main agenda of the new administration of President Ferdinand Marcos Jr is economic recovery. Ahead of the president’s first state of the nation address, the finance secretary said that “the government’s medium-term fiscal framework is aimed at reducing the budget deficit, promoting fiscal sustainability, and enabling robust economic growth.”
These policy goals seem perfectly reasonable. The economic picture for the country, however, is more complex, requiring extraordinary leadership, technocratic competence and political finesse from the Marcos administration.
In April, just weeks before Marcos’s election victory, the Asian Development Bank (ADB) forecasted 6.0 percent GDP growth for the Philippines this year and an even higher rate of 6.3 percent next year. Soon, however, it became clear that the new administration would have to deal with a combination of inherited and new economic challenges.
Marcos inherited a ballooning debt, due to his predecessor’s massive borrowing, which brought the debt-to-GDP ratio to a 16-year-high. Then came the triple shocks from Russia’s invasion of Ukraine that disrupted global commodity markets, China’s economic slowdown that further disrupted regional production networks and growth outlook, and the interest rate hikes in the US, which dramatically drove down Asian currencies including the Philippine peso. The result is a toxic cocktail of rising prices and declining growth across the world, with the threat of global “stagflation” on the horizon.
It is hard to see how the government can simultaneously avoid tax increases, expand targeted subsidies to vulnerable sectors, maintain infrastructure spending at 5-6 percent of GDP, achieve above-average annual growth rates of close to 8 percent, reduce the budget deficit by more than 60 percent in coming years, and slash the debt-to-GDP ratio from more than 60 percent to just above 50 percent in 2028.
Welcome to real-world governance.