The International Monetary Fund (IMF) has cited President Duterte’s 10-point socioeconomic agenda to promote inclusive growth and reduce poverty incidence from the current 26 percent to 17 percent over the next six years via massive public investments.
In its latest annual assessment report, the IMF welcomed the new government’s intent to sustain high growth and “accelerate poverty reduction,” as a staff team of its Executive Board noted that poverty, income inequality and unemployment persisted in recent years despite the country’s favorable macroeconomic performance.
This staff team pointed out in last month’s report that former Davao City Mayor Duterte, who was inaugurated as president in June with a 10-point agenda calling for a “more ambitious” inclusive growth strategy, had tapped into a desire by Filipinos for change to tackle “the high levels of poverty and inequality that persists especially in rural areas despite years of robust economic growth.”
In a joint statement that accompanied this IMF staff report, Executive Director Marzunisham Omar and his senior adviser Thomas Benjamin Marcelo said, “The Philippines remains committed to continue implementing sound macroeconomic policies and wide-ranging structural reforms to support the strong and sustained growth of the economy and enable a durable reduction in unemployment and poverty.”
A few weeks ago, top fund manager Mark Mobius said economic risks remain “benign” in emerging Asian markets, including the Philippines, where he believes the assumption to office of President Rodrigo Duterte would be “good” for the country in the long run.
Mobius, who has spent more than 40 years working in emerging markets all over the world, said in a television interview that investors should not be overly concerned over Duterte’s firebrand image, given that the Philippine president belongs to a new wave of “more populist leaders” across the globe who are effective in implementing law and order in their respective countries, “which is a good thing.”
“I think the marketing impact is going to be good to longer term. Once he (Mr. Duterte) gets his house in order….I think he’s going to be softening and you’re going to see the reform taking place,” said Mobius, who is executive chairman of the Templeton Emerging Markets Group.
When asked if he does not see anything negative about Mr. Duterte’s use of colorful language, Mobius said: “No I really don’t. I think we’re seeing this globally, more populist leaders, people who are effective in pushing down crime and corruption. You’re seeing that all over the world, which I think is a good thing.”
Mobius said concerns about the Philippines and Duterte are “overdone” considering that other countries in Asia, like Indonesia and Thailand, are also dealing with their own political issues.
“I don’t see downside anywhere, because there are individual problems in each country. There’s concern about Duterte and the Philippines which I think is overdone. There are concerns about reform in Indonesia; in Thailand, the political environment may be questionable. But all in all, the situation looks pretty benign in Asia,” he said.
This “benign” situation, Mobius said, also includes the Philippines, where a successful campaign against crime and corruption spearheaded by Duterte “will be very positive for the [country].”
In his various speaking engagements, Secretary Carlos Dominguez III of the Department of Finance (DOF) has bared that the paramount objective of the President’s 10-point socioeconomic agenda is to free some 10 million Filipinos from poverty and transform the Philippines into an upper middle-income economy by the time Mr. Duterte leaves office in 2022.
To do so, he said, the government is raising deficit spending to 3 percent of the Gross Domestic Product (GDP) from 2 percent in the past administration, so it can invest massively in three priority areas—infrastructure, human capital and social protection for vulnerable sectors.
He said the DOF is asking the Congress to pass its proposed Tax Reform for Acceleration and Inclusion Act to help the government generate enough funds for its agenda for inclusive growth—and to set the stage for spending at least P1 trillion more each year on the said three priority areas, with the aim of elevating the Philippines to high-income economy status in one generation or by 2040.
The Executive Board said in a separate statement that the IMF’s “Directors supported the increase in the fiscal deficit target to 3 percent of GDP from 2017, anchoring fiscal policy to a broadly stable public debt-to-GDP ratio. They noted that this would allow a welcome boost to infrastructure and social spending, while ensuring fiscal sustainability.”
It further said that the “Directors supported the (Duterte administration’s) goal to accelerate poverty reduction and their priorities for structural reforms.”
“Directors also welcomed the focus on financial deepening and inclusion as essential elements of the authorities’ inclusive growth strategy,” the IMF staff team said.
In its report, the IMF staff team said that Mr. Duterte was “inaugurated as the new president in June, with a 10-point economic policy agenda calling for continuing prudent economic policies and a more ambitious inclusive growth and structural reform strategy.”
“While primarily focusing on law and order, President Duterte tapped into a desire for change among a large part of the population to tackle the high levels of poverty and inequality that persists especially in rural areas despite years of robust economic growth,” it said.
The IMF staff team said, “The favorable macroeconomic performance in recent years has not led to corresponding improvements in social indicators. Income inequality and poverty persist and the unemployment rate has come down only slowly. Staff supports the (new government’s) efforts to implement reforms that would strengthen social indicators.”
“Staff supports the (Duterte government’s) objective to accelerate poverty reduction,” it said. “Staff welcomes the authorities’ initiatives in the 10-point policy agenda to increase social spending and promote rural development and agriculture.”
The IMF staff team noted that President Duterte’s 10-point agenda includes: “accelerating infrastructure investment; raising competitiveness by relaxing constitutional restrictions on foreign direct investment; ensuring security of land tenure; strengthening the education system; implementing a comprehensive tax policy reform, modernizing tax collection agencies; and improving social welfare programs.”
“The Philippines’ high poverty rate fell only by 0.3 percentage points per year, from 28.8 percent in 2006 to 26.3 percent in 2015 (national definition),” said the IMF staff team.
“The new authorities target a reduction in the poverty rate of 1.25 to 1.5 percentage points per year during their term, with a cumulative decline of 7.5 percent to 9 percent in six years,” it said.
The IMF staff team said, the “Staff supports the government’s plans to improve human capital and social services for the poor. It also supports the efforts to promote development in a more geographically balanced manner.”
“In this respect, staff welcomes the plans to improve the conditional cash transfer program, raise investment in education and health, promote rural and value chain development, and ensure land tenure in agriculture,” it said.
It said, “The new administration plans to increase the deficit target to 3 percent of GDP starting in 2017, to raise infrastructure and social spending, implying a fiscal stimulus of 1 percent of GDP in 2017.
“The deficit target of 3 percent of GDP, higher than the 2 percent under the previous administration, would allow the authorities to address the Philippines’ large infrastructure and social gaps to promote inclusive growth,” said the IMF staff team.
“It would also reduce the debt-to-GDP ratio to under 31 percent in 2021, thus providing a margin of 5 percent of GDP to respond to materialization of fiscal risks and uncertainty around the baseline projections through flexible implementation,” it added.
Article IV of the IMF’s Articles of Agreement calls for the IMF’s bilateral discussions with members, usually on a yearly basis.
This Staff Report was prepared by a team for the IMF Executive Board’s consideration last September, following consultations with Philippine officials on economic developments and policies under the new government.
In its own statement, the IMF Executive Board said “the outlook for the Philippine economy remains favorable despite external headwinds.”
The Board said, “Philippine authorities are well equipped to respond as needed with suitable policies should any risks materialize, particularly given the strong fundamentals and ample policy space.“