The governor of the Philippine central bank, Bangko Sentral ng Pilipinas, is confident that the country will be able to hit the 6.5% GDP growth forecast despite the austere Covid-19 health and income support the government has provided relative to other countries in the Asean.
“My territory is the monetary side,” BSP Governor Benjamin Diokno points out. However, he notes that a form of fiscal stimulus will be the proposed Corporate Recovery and Tax Incentives for Enterprises Act, which is awaiting the signature of President Rodrigo Duterte. “We are cutting corporate income tax by 10%, from 30% to 20%. That is a significant revenue loss but it is kind of neutral and a kind of stimulus.”
On the spending side, he says the recently approved 2021 national budget will be another boost to the economy. “A big chunk of that is for infrastructure – close to 6% will be for Build, Build, Build,” Diokno adds, referring to the administration's centrepiece programme. “Not many know that there is a recent Supreme Court decision that would give more money to LGUs (local government units).”
If the LGUs use the money correctly, he believes that would be another big help to turn around the economy. “As they [LGUs] are closer to the people, they will know exactly what the citizens need. If I were the budget secretary, I would front-load the spending – instead of spending it on a quarterly basis, I would spend 60% of the budget during the first half of the year, and even as high as 70%, to support, for example, the school building programme. This is the best time to build schools because it is the dry season and there are no kids in school.”
A combination of tax cuts and budget expenditure, and with the vaccines already in town, would be sufficient to achieve the desired goal of 6.5% (GDP growth), Diokno says.
The central bank governor also dismisses concerns that the country might face low growth and high inflation as some analysts have warned after inflation started to trend upwards since October 2020 to reach 4.2% in January 2021, the upper bound of the 2% to 4% range set by the central bank. “That is a misplaced concern. The inflation we have seen in the past two months is transitory. It is not going to be a permanent feature of the Philippine economy. We expect inflation to normalize to levels within our target range by the second half of the year.”