DOF sees 7% growth, manageable inflation in 2018

January 4, 2018

Growth of at least 7 percent is doable this year with the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Law—the first package of the Comprehensive Tax Reform Program—along with the planned tariffication on rice, and massive infrastructure projects under the ambitious “Build, Build, Build” program of the Duterte administration, according to the Department of Finance (DOF).

In an economic bulletin, DOF Undersecretary Gil Beltran said this would also enable the government to sustain a manageable inflation environment going forward.

“Low inflation is an indication that the country’s macroeconomic fundamentals remain strong. Solid fundamentals backed by TRAIN 1 implementation, rice sector reform and the ‘Build, Build, Build’ policy will push the country’s growth to 7-8 percent this year and sustain manageable inflation,” Beltran, who is also the DoF’s chief economist, said.

The TRAIN was signed into law by President Rodrigo Duterte last Dec. 19 and took effect last Jan. 1. TRAIN exempts compensation earners and self-employed individuals with an annual taxable income of P250, 000 and below.

For the month of December 2017, Beltran predicted inflation likely eased further to 3.2 percent from the previous month’s 3.3 percent, on the back mainly of more stable food prices and lower power costs.

Citing estimates from the Philippine Statistics Authority (PSA), Beltran said price increases of food and non-alcoholic beverages last month likely remained unchanged at 3.2 percent. Rice prices were also seen unchanged at 1 percent. Communication, education, and restaurant and miscellaneous services were  seen to stay at their levels.

The commodity groups that likely recorded slower price increases in December are housing, utilities and fuels, 3.7 percent from 4.2 percent a month ago; electricity, gas, and other fuels, 8.1 percent from 9.7 percent; transport, 2.8 percent from 4.4 percent; recreation and culture, 1.5 percent from 1.6 percent.

Data showed Meralco’s per-kilowatt-hour rate for households consuming 200 KW for the month of December declined to P9.25 from P9.63 in November. Meralco’s generation charge for the month decreased to P4.60 from P4.91 a month ago.

Prices of diesel per liter in the National Capital Region increased to P36.20 last month from P35.46 in November. But prices of gasoline per liter in NCR declined to P48.12 from P48.48 a month ago.

Inflation from January to November averaged 3.2 percent, well within the government’s official target range of 2 to 4 percent for the year. Inflation peaked at 3.5 percent last October.

The inter-agency Development Budget Coordination Committee (DBCC) last Dec. 22 kept the current inflation target of 2 to 4 percent from 2018 to 2020.

The economy grew by 6.7 percent in the first three quarters of 2017, mainly driven by robust domestic demand, higher fiscal spending and investments. This was well within the target range of 6.5 to 7.5 percent for the year.

The P8.44-trillion “Build, Build, Build” infrastructure program of the Duterte administration is seen to create multiplier effects in terms of employment aside from further spurring economic activities.

Under the program, the government aims to build more roads, bridges, airports, seaports, railways, water and irrigation projects nationwide. Also included is a 24-kilometer subway train in Metro Manila in a bid to decongest the metropolis of heavy traffic that has been causing billions of pesos in economic losses daily.

Earlier, Beltran said the lifting of quantitative restrictions (QRs) on rice imports in favor of tariffs would bring several benefits to the economy, among them, slashing the retail price by as much as P7 per kilo and help free some 730,000 Filipinos from poverty.

Beltran said a 35-percent import tariff on rice in lieu of restricting rice import volumes would encourage private traders to bring in the staple into the country, which would, in turn, allow the influx of cheaper rice in the domestic market.

“Pulling down rice prices is crucial to poverty reduction because this staple is a major driver of inflation,” Beltran said.

The QR policy will allow the country to limit the volume of rice imports entering the Philippines with a tariff of 35 percent. Importing outside the volume restrictions will entail a higher import tariff.

The Duterte administration’s economic managers decided to allow the expiration of the QR without applying for another extension before the World Trade Organization.

Beltran said that at an expected import rate of 35 percent, the proposed tariffication would generate P27.3 billion, which the government could use to augment funding for social protection projects like cash transfers for the poorest families as well as for palay productivity programs.

Finance Secretary Carlos Dominguez III said among the key objectives of the Duterte administration’s inclusive growth agenda was to transform the Philippines into an upper middle-income economy and cut the poverty rate from the current 21.6 percent to 14 percent by the time the Chief Executive leaves office in 2022.

The WTO granted the Philippines an extension of its QR on rice importation until June 30, 2017 to give local farmers more time to prepare for free trade. It first allowed the Philippines to impose a 10-year QR in 1995. It was extended in 2004 until 2012, and then was renewed again in 2014. DMS