PH to grow about 6.8% in 2018, Dominguez tells Fitch

FILE: Finance Secretary Carlos Dominguez III at the 51st Asian Development Bank Annual Meeting on May 25, 2018 (Photo: Department of Finance/Facebook)

MANILA — The Philippine economy’s growth is expected to remain strong at “close to 6.8 percent” this 2018 and will be driven by the increased spending on infrastructure, the country’s finance chief said in a recent Fitch Ratings interview in Manila.

“In think we will still be close to 6.8 percent this year. I think the momentum on our “Build, Build, Build” is strong and we are really moving quite well in our infrastructure program,” Finance Secretary Carlos Dominguez III elaborated.

This growth outlook is higher than the 6.7 percent output of the domestic economy, as measured by gross domestic product (GPD), in 2017.

In the second quarter this year, the economy registered a growth of six percent, slower than quarter-ago’s 6.6 percent on account of minute expansion of the agriculture sector and high inflation rate.

Agriculture grew by 0.2 percent from April to June this year while inflation has been posting multiyear highs, with the second quarter average at 4.8 percent, higher than the two to four percent target band until 2020.

Last July, inflation hit 5.7 percent from month-ago’s 5.2 percent, bringing the seven-month average to 4.5 percent.

Amid the slower growth in the second quarter this year, Dominguez remains optimistic the domestic economy can achieve faster output in the coming months.

“We believe that we’re not really in danger of overheating at the moment. We still have long way to go,” he said.

“So, I think we’re still within safe borders,” he said, citing big expectations from the impact of the government’s massive infrastructure program.

Under the Duterte administration’s infrastructure program, the government will invest at least PHP1 trillion annually, with the investment by 2022 or by the end of the current government’s target, targeted at least PHP8 trillion.

“We are looking forward to continuing our “Build, Build, Build” program. Basically we are just catching up with our neighbors on infrastructure and that is going pretty well,” he said.

Another plus for the Philippine economy is the passage of the first tax reform package, which boosted government revenues “quite significantly”, Dominguez said.

The Tax Reform for Acceleration and Inclusion (TRAIN) Act was signed into law in December 2017. It cut workers’ income tax rates but increased excise tax on fuel products and introduced excise tax on vehicles and sugar-sweetened beverages.

Dominguez said the government’s infrastructure program further got a boost from official development assistance (ODA) loans from China (USD9 billion), Japan (USD9 billion) and South Korea (USD1 billion).

With external headwinds such as interest rate hikes still strong, Dominguez said the Philippines needs to adjust to these.

“I think we will cope with it as best we can,” he said, noting that the Bangko Sentral ng Pilipinas (BSP) has increased its own key rates by 100 basis points so far this year.

The Finance chief, however, pointed out that the Philippines is not a big trading nation and thus impact of the slowdown of global trade would be limited.

“And we have, as I’ve said, we are well funded to continuously support the economy via the “Build, Build, Build” program,” he said.