Presumptive president Ferdinand Marcos Jr. must choose his economic team wisely, grounded on their grasp of financial and economic realities here and around the globe.
He must immediately address rising inflation and fiscal issues, as the economy recovers from a coronavirus pandemic and the Russia-Ukraine war, analysts said.
“The incoming president will need to treat inflation as a top economic priority. The prolonged pandemic has widened income disparity in the Philippines and increased unemployment,” Sonia Zhu, an analyst at Moody’s Analytics, said adding that “Inflation will be a big headache for the new Philippine president.”
She noted that leading presidential candidate former Senator Ferdinand R. Marcos, Jr. has floated fiscal support suggesting fuel subsidies.
“Inflation management has become a key policy point. Since early 2022, household discretionary income has come under threat from higher prices for staples,” Zhu told Business World earlier.
3-year high in April
Headline inflation sizzled to a three-year high of 4.9 percent in April, driven by soaring food and energy prices amid the Russia-Ukraine war. This surpassed the central bank’s 2-4 percent target, and the 4.3 percent forecast for 2022.
Commodity prices are expected to edge higher in the next months amid supply chain disruptions, China lockdowns and concerns over oil supply.
Another economist, Pantheon Chief Emerging Asia Economist Miguel Chanco said the next president should prioritize reviving the Philippine economy, whose recovery has “easily been the most lackluster in emerging Asia.”
Repairing economic damage
“We’d even go so far as to say that it doesn’t really matter who takes the helm at Malacañang, as any future administration will be preoccupied with repairing the economic damage caused by the pandemic since 2020, with economic reforms likely to take a backseat,” he said.
The Philippines’ gross domestic product (GDP) grew by 5.7 percent in 2021, after a record 9.6 percent contraction in 2020. The government is targeting 7-9 percent growth this year, although multilateral agencies are forecasting below-target growth due to the Russia-Ukraine war.
“Based on our current forecasts, real GDP will remain some 15 percent below the pre-COVID trend by the end of this year,” Chanco said.
The next administration must also address the weak labor market, he said. The unemployment rate fell to 5.8 percent in March.
“Consumption, the economy’s mainstay, is likely to stay under pressure, with the sluggish job market, the rebuilding of savings lost since 2020 and, more recently, fast-rising inflation, weighing heavily on spending decisions,” Chanco said.
Economic scarring
Think tank IBON Foundation Executive Director Sonny A. Africa said the new president should deal with the “considerable economic scarring” from the strict lockdowns during the early part of the pandemic.
“(The) current economic managers downplay the National Government debt burden it has substantially bloated, which will weigh heavily on public spending on social and economic services,” he said.
Outstanding National Government debt hit a record P12.68 trillion at end-March. The debt-to-GDP ratio hit a 16-year high of 60.5 percent in 2021, which is slightly above the 60% threshold considered manageable by multilateral lenders for developing economies.
“The Philippines might not have the financial capacity to provide such fiscal cushioning. The limited fiscal room has the new administration’s hands tied when it comes to navigating price hikes,” Zhu said, adding that it may be up to the central bank to do the heavy lifting to cool inflation.
“A first-quarter GDP growth reading above 6% year on year will increase the odds of a rate hike in June to 60 percent,” she added. First-quarter GDP data will be released on May 12.
Biggest budget blowouts
Chanco said the country continues to face fiscal constraints. “The country suffered one of the biggest budget blowouts at the height of the COVID crisis, and progress in closing the budget gap has essentially stalled,” he said.
The budget deficit shrank by 1.44 percent year on year to P316.8 billion in the first quarter.
Tom Rafferty, The Economist Intelligence Unit regional director for Asia, said Marcos would likely continue the “broadly pro-market” policy agenda set by outgoing President Duterte such as the infrastructure push, tax incentives for businesses and removal of barriers to investments. But the biggest risk to Marcos’ presidency will be the execution of his policy agenda.
“Failure to navigate the oft-fractious parliament and adequately deliver progress on major business-friendly reform and infrastructure upgrade amid an ongoing pandemic, which will require consummate political and communication skills, could jeopardize the country’s hitherto impressive recent growth trajectory and trigger a sudden reversal of fortune and ensuing political volatility in 2023,” he said.
Economist Cid Terosa of University of Asia and the Pacific said the presidential winner would matter to markets in the short run
“but the business and market environments that the next president will weave matter more in the long run.”
The next administration will inherit an economy whose growth momentum is challenged by inflation and fiscal issues, he added.
“Will his administration accelerate or decelerate the growth momentum? It will all depend on the economic decisions (Marcos) will make in the first three to six months of his presidency,” Terosa said.