Growth seen hinging largely on domestic demand

By Melissa Luz T. Lopez
Reporter
THE PHILIPPINES will have to rely on domestic activity to boost growth at a time of a global economic slowdown, but a foreign consultancy flagged that the current deadlock on 2019’s national budget will likely weigh on the country’s economic prospects.
Peter Lundgreen, founding chief executive officer of Lundgreen’s Capital, said the country’s growth story as well as investor interest are at risk as the 2019 national budget continues to languish before Congress.
“The biggest risk of all is actually local… The attractive Philippine growth must come from domestic demand, it’s where growth should come from,” Mr. Lundgreen said in an interview yesterday.
“They should care extremely about not disturbing domestic growth… the budget impasse is completely hopeless in that direction… There won’t be any export story as global growth is on the way down.”
Lawmakers remain at a deadlock over the details of the P3.757-trillion spending plan, with the Senate refusing to accept alleged last-minute changes the House of Representatives introduced to the ratified budget bill.
Hence, Congress has yet to submit the national government’s spending plan this year to Malacañang for President Rodrigo R. Duterte’s signing into law.
The government has been operating on a re-enacted 2018 budget that leaves new programs and even some big-ticket infrastructure projects unfunded.
Last week, economic managers slashed growth targets to 6-7% this year from the original 7-8% goal, saying it will be “very difficult” to catch up with spending as they have already missed the best time to roll out infrastructure projects in the first quarter.
The Philippines grew by 6.2% in 2018 as high inflation curbed consumer spending, settling well below the state’s target.
“The story for the Philippines is domestic growth and if people start to hurt that story, then it’s simply too stupid,” Mr. Lundgreen said.
On the other hand, he cautioned against future rate cuts from the Bangko Sentral ng Pilipinas (BSP), saying that it is not the central bank’s duty to spur growth.
BSP Governor Benjamin E. Diokno said last week that he sees room to ease policy rates as well as the “very high” reserve requirement ratio (RRR) for big banks, which markets took as dovish signals that kept the peso down.
Mr. Diokno even revealed plans to slash the RRR by one percentage point every quarter for the next four quarters.
“I don’t see a particular reason for cutting rates,” the Denmark-based investment advisor said, adding that lower inflation is a global trend and has “nothing to do” with local rate hikes in 2018.
Mr. Lundgreen added that Mr. Diokno needs to show a “firm hand” and maintain the BSP’s independence from the central government’s economic agenda.
Without the budget stalemate, he added the Philippines would have seen a “much more stable” year with a relatively high growth rate.