What it takes to get back: 7-8% GDP growth in 6 years

| Written by Padayon UP

THE Philippines needs to post GDP growth of 7 to 8 percent annually in the next six years in order to regain what the economy lost during the pandemic, according to an economist from the University of the Philippines School of Economics (UPSE).

In a presentation on Monday at the #PILIpiLUNAS2022 webinar, UPSE Associate Professor Renato Reside Jr. said this level of growth annually, or higher, could help finance future deficits.

Reside said higher growth is needed because the next administration must allocate 2 to 3 percent of GDP annually in the next six years as fiscal stimulus to regain the jobs lost during the pandemic.

“For the Philippines, the best way to finance future deficits is to restore economic growth to slightly above the prepandemic norm—positive 7 to 8 percent per annum if possible—or higher—to be able to lower the debt stabilizing primary balance to levels consistent with financing the required broad-based growth —and employment—enhancing expenditure stimulus of a maximum of 2 to 3 percent of GDP per annum for the next several years,” Reside said.

Reside said the next administration will have to face primary risks for the Philippines which include low GDP growth; fiscal risks from adverse interest rates, exchange rate or off-balance sheet shocks; and external risks such as foreign interest rates and recessions abroad.

The biggest risk for the Philippines, however, Reside said, is protracted, uneven and slow economic growth. In order to address this, he said, the country needs to grow the economy more consistently.

While the country can still afford to borrow to finance “productive expenditures,” Reside cited the need to monitor interest rates that could further increase the cost of borrowing for the Philippines.

“My research suggests that a feasible fiscal stimulus that will support a broad-based, sustainable economic recovery, that would take the country reasonably close to potential—full employment —output would be in the order of around a maximum of 2 to 3 percent of GDP per annum spread over at least the next six or more years,” Reside said.Risks, recommendations

To raise additional revenues, Reside said the next administration should continue tax reform measures. Those under the Passive Income and Financial Intermediary Taxation Act (PIFITA), for instance. would be crucial in the next six years.

The PIFITA, he said, would help simplify the taxation of passive income, financial services, and transactions. It will also harmonize the tax rates on interest, dividends, and capital gains, and the business taxes imposed on financial intermediaries.

Reside also recommended real property valuation reform which seeks to adopt internationally accepted standards, rationalize the process of valuation, and help create a single valuation base for taxation.

The next administration, he said at the open forum, “should focus on public investments in the most productive sectors that I would think, given what we went through, these would be infrastructure, education, and the health sector. I think those are the things that we need to focus on at the moment.

Apart from these, UPSE Associate Professor Cielo Magno said the next administration should strengthen institutions and efforts to implement a comprehensive social protection program.

The national government is now finalizing the social protection floor (SPF) and the National Economic and Development Authority (Neda) is doing the analysis of the impact of the implementation of such a measure.

Neda Undersecretary for Planning and Policy Rosemarie G. Edillon said the thrust of the SPF will be within a “comprehensive framework of social protection [that is] encompassing preventive, promotive, protective and transformative.”

Meanwhile, UPSE Assistant Professor Adrian Mendoza said apart from strengthening institutions, the next regime must beef up support for Science and Technology as well as innovation to boost the manufacturing industry.

Other guests at the webinar, including Trade Undersecretary Rafaelita Aldaba agreed with Mendoza and said efforts to push forward the country’s inclusive innovation strategy.

Aldaba said efforts to innovate are vital to help diversify exports and bolster the domestic market base, as well as to modernize agriculture and move more workers to the formal from the informal sector.

(This article, written by Cai Ordinario, was first published in the Business Mirror Website on February 22, 2022)