The Economy under Duterte: 'Reformist, pro-poor, and pro-regional'
In reflecting on the administration’s economic performance in the last five years, I begin with what it inherited from former Presidents Gloria Macapagal Arroyo and Benigno Aquino III.
President Arroyo confronted a dire fiscal situation and restored fiscal sustainability through consolidation. President Aquino continued prudent fiscal policies and further expanded public financial management reforms that had begun under President Arroyo.
By the time Mayor Rodrigo Roa Duterte was inaugurated as the 16th President of the Republic of the Philippines in June 2016, there was ample fiscal space to embark on an ambitious, transformative reform program. And this is exactly what President Duterte has done. If I am to sum up his administration’s economic policy achievements, I would describe it as proactively reformist, pro-poor, and pro-regional.
Perhaps the most transformative among all the reform programs is the administration’s focus on infrastructure.
Driven by the vision to make the Philippines an upper-middle-income country with a poverty rate reduced to 14% of the population by 2022, the administration adopted a comprehensive and well targeted reform agenda, which laid a strong foundation for a resilient and high-growth economy for years to come. At the same time, the government has pursued a pro-poor social protection agenda to help lift millions out of poverty. These reforms are complex and required a careful balancing of competing interests.
While many of the reform measures had been pending since the 1980s, successive administrations were unable to pass and enact laws needed to realize them. To accomplish these much needed reforms in five years is quite remarkable for any government, anywhere, anytime.
There are many transformative reforms worthy of mention, but the list is too long, so I’ll highlight a selection of them.
First are the comprehensive tax reforms, including raising thresholds on personal income tax, reducing the corporate tax rate, consolidating fiscal incentives, higher taxes on sin products such as alcohol, cigarettes and sweetened beverages, and reforming real property taxes. These measures will improve the efficiency and equity in the tax system. They are necessary to fund social protection and much-needed infrastructure.
Second are the agricultural reforms through the Rice Tariffication Law of 2019, which deregulated rice trade in the country by eliminating the National Food Authority’s import monopoly and replacing rice import quotas with tariffs. As intended, these reforms have helped improve farm productivity and stabilize prices.
The COVID-19 pandemic put the brakes on the Philippines’ economic expansion in 2020, like it did to the rest of the world.
Third is the Anti-Red Tape Law of 2019, which introduced an institutional approach to regulatory reforms with the creation of the Anti-Red Tape Authority.
In social protection, the landmark Universal Health Care Law of 2019 will help millions of Filipinos access affordable quality healthcare. Under this reform, poor Filipinos do not need to make financial contributions to get healthcare. Amendments to social protection legislation institutionalized the Pantawid Pamilyang Pilipino Program (4Ps), and established a basic unemployment insurance scheme.
A cross-cutting socioeconomic reform is the Philippine Identification System Act of 2018, which aims to simplify government and private transactions. By providing citizens with a unique ID number, millions of poor Filipinos will gain easier access to the financial system and the government’s social assistance programs.
Perhaps the most transformative among all the reform programs is the administration’s focus on infrastructure. The “Build, Build, Build” (BBB) infrastructure development program has raised public funding for infrastructure projects to about 5% of GDP, a rate not seen since the mid-1990s.
The BBB program has implemented large, complex projects at a fast pace, and these will improve competitiveness and regional connectivity, expand jobs, and reduce regional income disparities. Of the many flagship infrastructure projects of this government, I highlight the North-South Commuter Railway project being implemented by the Department of Transportation, with cofinancing from the Asian Development Bank and the Government of Japan. This multi-billion project was well-prepared in record time. Once completed, it will usher in a new era of public rail transport in the Philippines.
I believe the economy will return to its 6% plus growth by 2023.
The COVID-19 pandemic put the brakes on the Philippines’ economic expansion in 2020, like it did to the rest of the world. It also meant the government had to immediately shift resources to fighting the pandemic.
The economy is currently in its early phase of recovery, and with the national COVID-19 vaccination program now in full swing along with the government’s health response, macroeconomic management, and structural reforms, I believe the economy will return to its 6% plus growth by 2023.
As we enter the final 12 months of the Duterte administration, the agenda remains busy, much like with all reformist governments.
The administration is working double time with Congress to implement priority structural reforms. These include amendments to the Public Service Act and Foreign Investment Act, which will relax restrictions on foreign ownership. These reforms will be a game-changer for the Philippines’ investment climate. I also believe enacting best practice reforms to the apprenticeship scheme and further strengthening social unemployment insurance are laudable priorities to help young people transition into jobs and address the Philippines’ skills deficit.
There will be unfinished business, and the hope is that the next administration will take on pending reforms further.
Still, there will be unfinished business, and the hope is that the next administration will take on pending reforms further.
The BBB should not be considered a one-term infrastructure program, but an intergenerational investment program. Related to infrastructure is the climate change challenge, including managing an energy transition from fossil fuels to renewables.
Finally, the pandemic will create scarring effects on the labor market and more reforms and investments are needed in skills development of Filipino workers to prepare them for this adjustment and the future of work.