STATEMENT

ERNESTO M. PERNIA, PhD

Socioeconomic Planning Secretary

 

Press Conference on the Performance of the Philippine Economy

in the Second Quarter of 2019

August 08, 2019; 10:00 am

Hampton Conference Hall, Second Floor, Astoria Plaza, Pasig City

 

Our Partners from the Philippine Statistics Authority,

Colleagues in government,

Friends from the media,

Ladies and gentlemen,

Good morning.

 

As reported by the Philippine Statistics Authority, the Philippine economy grew 5.5 percent in the second quarter of 2019, the country’s lowest growth outturn in 17 quarters.   This means that we will have to grow by an average of at least 6.4 percent in the second half to reach the low-end of the full-year growth target of 6.0 to 7.0 percent in 2019.

As we have anticipated, these have been challenging times.  The past year, we had  enumerated the major ones that we thought would impact our economic performance, namely the El Nino phenomenon, the increasing protectionism in advanced economies, and the election ban on construction activities.

First, the El Nino phenomenon is seen to be responsible for the contraction in the output of the water-sensitive crops: palay, which contracted by 5.5 percent and corn, declining by 8.4 percent.  This is why we must equip the agriculture sector with an effective climate change and disaster risk reduction program that will reduce production losses owing to weather disturbances. In addition to insurance programs, we must introduce technological solutions in order to build resiliency.

Importantly, we should ensure the proper implementation of the rice tariffication law. And then the thrusts of the Department of Agriculture, under its new leader, Secretary William Dar, are worth supporting. These will help us achieve food security, protect our farmers from risks, and make the agriculture sector more profitable.

Also on the El Nino phenomenon, we note that though we only experienced a mild El Nino, the impact on water supply, particularly in Metro Manila, was severe.  And this adversely affected consumer confidence, resulting in a slowdown in household consumption, growing by 5.6 percent in the second quarter, compared with 6.2 percent growth in the first quarter.  The water crisis appears to have resulted from poor coordination between the government (with more than thirty agencies in charge) and the private distributors.  Once again, we call for the creation of an apex water body to handle management and generation of water resources, and another one to regulate water use.  We envision a setup similar to the energy sector, where there is a Department of Energy and an Energy Regulatory Commission.

Second, the growing protectionist stance in the advanced economies is having a moderating impact on the IT-BPM sector, so that exports of miscellaneous services only grew by 1.3 percent.  It used to grow by double digits up until three years ago.  Note that the sector is also being adversely affected by the rise of artificial intelligence.  We need to encourage the sector to re-tool and reform in order to service the higher value-added business processes.

Third, we have also anticipated the ban on public works and other spending, leading up to the May 2019 elections.  For this reason, government agencies had undertaken pre-procurement processes, short of award, during the latter part of 2018.  What we did not foresee though, back then, was the delay in the passage of the 2019 national budget.

The weak economic performance during the second quarter of 2019 is the continuing effect of that delay in the passage of the 2019 budget, coupled with the election ban.  Government consumption spending has slowed down; capital formation has declined rather sharply, particularly on the government’s side. Public construction dropped by 27.2 percent for the second consecutive quarter, which offset the growth brought in by private construction.

For this reason, we are calling for the timely passage of the national budget for fiscal year 2020, so as not to derail next year’s economic growth.  This is crucial to the delivery of the government’s promises such as the completion of the Build, Build, Build program and the full implementation of the country’s social development programs, such as the free tertiary education, the universal health care, and the expanded conditional cash transfer, among others.

For the remainder of the year, government must continue to push forward and fast track the implementation of infrastructure projects under the program as only 11 (of 38 NEDA Board-approved project proposals) out of the 75 infrastructure flagship projects are in the construction phase. To ensure sustained construction activity, expediting the approval of permits and requirements for construction-related projects is important for agencies to attain target disbursements. This early, we need to consider extending the validity of the 2019 budget.

We are also seeing the impact of policy uncertainty on investments.  Hence, we call on the new Congress to prioritize the passage of the TRABAHO Bill, as well as the amendments to the Foreign Investment Act, the Public Service Act, and the Retail Trade Liberalization Act.

In addition, a revised Security of Tenure bill should be passed that addresses specifically the loopholes in the country’s labor law, while making sure the labor market becomes more – not less – flexible that attract investments creating more job opportunities.

On the external front, it is essential for the country to diversify its products and markets through the establishment or improvement of new and existing trade relations with strategic partners. This would help the country withstand external shocks and promote growth over the medium term. We should also think beyond traditional export products and markets.  Tourism holds a huge potential for the country, especially since travel has been largely insulated from the trade wars and other tensions that we have been witnessing.  Strategic and sustained efforts to ramp up the tourist sector will greatly help compensate for the moderation of the goods exports.

Friends, this growth slowdown serves as a challenge to all of us, all branches of government and the private sector. We are now in the process of updating the Philippine Development Plan 2017-2022, taking account of progress we have made, the lessons we have learned, as well as new challenges and prospects ahead. As we move forward,  we remain optimistic and determined to pursue our goals — for the economy and especially for the people.

We hope that everyone remains supportive and committed to help each and every Filipino realize their long-term vision of a  matatag, maginhawa, at panatag na buhay para sa lahat!

Thank you and good morning once again.