Sunday, May 3, 2009

Reading between the lines of the ADB’s recent evaluation of the Philippines (The Asian Development Outlook 2009: Southeast Asia Chapter)

By Siesta friendly

The ADB, unlike a lot of our government officials, are a diplomatic and politically correct lot. They churn out country reports about 2x a year discussing the ups and downs of a country’s economic data but without directly dissing anyone. Below is an effort to decipher what the ADB meant in their recent report on the Philippines. The ADB report with subtitles, if you like.

The translations may entirely be the outcome of our fertile imagination.

Brief Summary and Forecast

ADB Statement: GDP growth slowed sharply in 2008, largely reflecting the effects of decade-high inflation on consumption and of weakening global demand for exports. The Government has eased fiscal and monetary stances and plans a stimulus package. These moves should mitigate the slowdown caused by a forecast decline in exports and sluggish domestic demand, and help protect the poor. But they will not prevent a slide in growth this year.

Translation: Let’s not kid ourselves: 2007 was an election year which brought about the unusually high GDP growth, but now it’s back down to reality. The government’s handouts to help the poor are superficial and really not meant to have any permanent effect.

Review of 2008

ADB Statement: Hampered by a surge in inflation and weaker external demand, GDP growth slowed to 4.6% in 2008 from 7.2% in 2007.

Translation: Remember the record-breaking billion peso spending for the May 2007 elections? Well, those days are gone.

Statement: Gross national product, which includes remittances from nearly 9 million Filipinos working abroad, decelerated to 6.1% from 8.0% last year. These remittances rose by 13.7% to $16.4 billion last year, or by about 9% in peso terms, helping support consumer spending. However, rising prices for food and fuel squeezed such spending, which accounts for about 77% of aggregate demand, slowing its growth to 4.5%. Still, private consumption contributed most to GDP growth from the demand side.

Translation: Everything will pretty much be at a standstill without OFW money.

Statements: Growth in government consumption spending also ebbed, partly owing to a high base effect from election spending in 2007.

Fixed capital investment decelerated sharply to 3.7% growth last year, from 11.8% in 2007, mainly because of a slowdown in public construction from the high level seen in the 2007 election year.

Translation: You didn’t think the government would spend much for its people outside an election year did you?

Statement: Private construction maintained double-digit expansion, assisted by housing investments from overseas workers.

Translation: When we say “assisted”, we mean “caused largely by”, otherwise we wouldn’t have highlighted OFWs in the first place.

Statement: Public construction activity contracted after rapid growth in 2007.

Translation: You know those bridges and roads are only made to get your votes, right? No election year? No public construction then.

Statement: Agriculture (including fisheries and forestry) grew at a 3-year low of 3.2%, as a result of much higher fertilizer and fuel costs.

Translation: Where on earth is the fertilizer fund?! Tell your president this is where funding is much needed, not in travelling abroad to pimp your countrymen for overseas work. Nor in buying legislators’ votes … Nor in lining one’s pockets ….

Statement: Looking to ensure rice supplies, the Government increased its purchases on the international market in the first half of 2008, when prices were particularly high.

Translation: See? If your government only supported the agriculture sector, you’ll still be a major rice producer, if not exporter. And, definitely would not have spent a high price for rice.

Statement: [T]he trade deficit [went up] to $12.6 billion, from $8.4 billion a year earlier.

Translation: Sorry, OFWs are not counted as export products so you’re importing much more than you’re exporting.

Statement: Inflows of remittances helped keep the current account in surplus, although that surplus fell to $4.2 billion (2.5% of GDP). The surplus in the capital account likewise was sapped by portfolio investment outflows, and inflows of foreign direct investment fell to $1.5 billion.

Translation: If you don’t get it yet, without OFW money, you’re in deep %&$#. Stock market players and direct investors have already lost their interest in you.

Statement: Gross international reserves rose to $37.6 billion at end-2008, largely on account of government borrowing abroad and a revaluation of gold assets in line with higher world bullion prices. Reserves climbed further by February 2009 to $38.9 billion (6.2 months of import cover and 4.6 times short-term external debt based on original maturity), reflecting proceeds from a government bond issue, loans from multilateral development banks, and privatization of the National Power Transmission Corporation.

Translation: We’re just telling you how much money you have but can’t have, if you know what we mean.

Statement: After reining in the fiscal deficit over several years, the Government changed tack in 2008 given [the] need to provide more help to vulnerable groups hit by much higher food and fuel prices.

Translation: Having spent most of its era using much of its revenues to pay for mounting – and questionable - foreign debt, the government only now starts pro-poor programs. We’re sure it’s just pure coincidence that next year is an election year. Wink.

Statement: Job creation remained lacklustre - average employment growth slowed to 1.6% in 2008 from 2.8% in 2007. The unemployment rate rose to 7.7% in January this year from 7.4% a year earlier, when underemployment was around 18% of the workforce.

Translation: Don’t tell us you believe the government’s rosy employment data.

2009 Prospects

Statements: The outlook is for a further deceleration in economic growth in 2009 as global demand weakens for both exports and workers from the Philippines, damping consumption and investment.

Consumer spending, though benefiting from the downtrend in inflation, is projected to grow by just 3.0%. That is because remittance inflows will likely flatten in US dollar terms as labor markets weaken worldwide. The number of workers going abroad last year rose until November on a year-on-year basis, but then fell by 5.8% in December Furthermore, the domestic labor market is waning as export industries, among others, trim headcounts, alongside the prospect of an influx of unemployed overseas workers. The National Economic and Development Authority, the official development planning body, estimates that about 800,000 workers at home and abroad are vulnerable to losing their jobs.

Translation: Brace yourselves folks, it can only get worse. The OFWs are coming home.

Statement: [H]igher public spending will support economic growth. The Government in January this year announced plans for a P330 billion ($6.9 billion) economic stimulus package. About 50%, or P160 billion will come from budget appropriations in 2009 to expand welfare programs, such as cash transfers to poor families as well as labor-intensive infrastructure projects that can be quickly implemented, including road maintenance, reforestation, and classroom building. Another 30%, or P100 billion, is for large infrastructure projects to be funded by government corporations and the social security system.

Translation: Okay, just between us, the first sentence should start with “We hope” and the entire paragraph is meant as a checklist for you to keep tabs on what government should be doing.

Statement: Amounts raised from the scheduled sale of more state-owned assets will depend partly on the state of financial markets.

Translation: What government owns 3 nationwide tv stations? And it’s too late to unload them now when they’re not likely to command a good price.

Statement: The national government debt has fallen significantly in recent years, from the equivalent of 77.7% of GDP in 2003 to 56.3% in 2008. However, the debt is still high and interest payments absorb a quarter of total expenditure. Moreover, contingent liabilities — mainly guarantees issued by the National Government – add a further $11.2 billion to the debt (Figure 3.28.11).

Translation: The Arroyo government’s obsession with repaying debt is surpassed only by its obsession with assuming more debt.

Statements: Domestic risks to the economic outlook include delayed implementation of the stimulus package due to capacity constraints.

[I]f the global economy does not pick up as assumed, the Government will be hard pressed to fund additional fiscal stimulus measures, given its budget constraints.

Translation: Tell your government officials to stop dipping their hands in the national coffers. There’s really not much left.

Statement: Social programs to protect the poor sometimes lack funds and often require better targeting.

Translation: Mike Arroyo and his cronies should not end up with the funds.

Statement: Still-high debt and the large share of interest payments in the budget expose the economy to swings in financial markets. They also underscore the importance for the Government of containing the debt risk premium through making steady progress on reforms. Further increases in revenue as a share of GDP and reductions in debt would not only reduce vulnerabilities but also build the fiscal resources needed for infrastructure and social programs.

Translation: Governments normally use revenues to fund their infrastructure projects and social programs. Your government is more known for continuously using revenues to pay for debt while incurring more debt. In case you haven’t noticed.

Statement: The 2008–2009 Global Competitiveness Report of the World Economic Forum ranks the Philippines 71 out of 134 countries and identifies inefficient government bureaucracy, inadequate infrastructure, policy instability, and corruption as important constraints.

Translation: In case you don’t believe our report, we took it upon ourselves to give you a 2nd opinion.

SOURCE: Asian Development Outlook 2009: Southeast Asia Chapter. Retrieved April 7, 2009, from Asian Development Bank Web site:


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