POLICY uncertainties tied to measures to bring down prices, pension reforms, and the Maharlika Investment Fund (MIF) need to be addressed by the government to limit risks to economic growth, a state-owned think tank said.
In a discussion paper released just before the end of December, the Philippine Institute for Development Studies (PIDS) particularly tagged inflation, fiscal, and sovereign investment risks as needing to be "reiterated and/or emphasized."
These are in addition to other proposals previously raised, including investing in infrastructure and human capital and encouraging investments, the discussion paper — which states that growth likely missed the target last year and will continue to do so in 2024 — notes.
From 7.6 percent in 2022, gross domestic product growth likely slowed to 5.2 percent last year — below the 6.0- to 7.0-percent goal, the PIDS said. While an expansion is likely this year, growth was still forecast to miss the 6.5- to 8.0-percent goal as of last month at 5.5-6.0 percent.
In light of continued risks from inflation, the think tank warned against mixed messaging and missed timing with regard to monetary policy along with policies that could have costly consequences.
With regard to the former, it noted that the Bangko Sentral ng Pilipinas (BSP) was "quite responsive" to data changes but urged continued monitoring and calibrated responses.
It cautioned against moves to impose price controls and urged the government to "make use of every weapon in the arsenal to control inflation, particularly those that work through the supply side," including relaxing import restrictions on goods vulnerable to shortages.
As for fiscal risks, the PIDS reiterated the need for details in the medium-term fiscal framework, particularly with regard to legislative measures and their timing, given the country's significant debt burden.
A particular fiscal risk "that must eventually be addressed," it said, involves reforms to the military and uniformed personnel (MUP) pension system, which is currently completely funded by the government.
"It will be quite difficult to achieve ... [an escalation of fiscal risk] without altering the existing MUP pension system's original components," the paper states.
Lastly, with regard to risks posed by the establishment of the Maharlika Fund, it urged the government to "follow what has already worked in many cases."
The paper noted that the MIF was a "new breed" of sovereign wealth fund that is not built on surplus government money. The resulting criticism has basis given the 1Malaysia Development Berhad scandal, it added, but successes such as India's National Investment and Infrastructure Fund and the Indonesia Investment Authority were cited.
"[T]he most important tack today entails appointing a truly independent board and professional management team [at the MIF]...," the PIDS said. "Anything less would place the fund at a disadvantage.
"In the end, success of the MIF will depend on whether it has, in fact, enhanced capital (and use of capital), boosted infrastructure development, fostered FDI (foreign direct investments), and promoted economic growth," it continued.
"All while also turning in a profit, or otherwise proving itself viable."
It noted that the fund should be highly monitored by the public and said that setting performance benchmarks "that cannot be masked by poor performance" would be an "important challenge."
As for the economy, meanwhile, the PIDS said the outlook remained uncertain for both 2023 and 2024.
The expected slowdown last year — preliminary results are scheduled to be released at the end of this month — would be primarily due to global headwinds and the lagged effects of monetary policy tightening.
Improvements in the jobs picture, higher wages, and continued consumption, meanwhile, could lift 2024 growth along with a resurgence in sectors such as construction and rising business expectations.
Inflation, which hit the PIDS forecast of 6.0 percent last year, was projected to fall within the 2.0- to 4.0-percent target in 2024.
The interagency Development Budget Coordination Committee recently trimmed the 2024 growth target to 6.5-7.5 percent, noting the potential risks of a global economic slowdown, El Niño, other natural disasters, as well as geopolitical and trade tensions.
The 6.5- to 8.0-percent goal was kept for 2025-2028.
The BSP's baseline inflation forecast for 2024, meanwhile, is a within-target 3.7 percent. Its risk-adjusted projection, however, is an above-target 4.2 percent.
