I am delighted to welcome you all to the launch of the Philippines Economic Update titled ‘Bracing for Headwinds, Advancing Food Security’.
Every six months, the World Bank’s releases an economic report that highlights recent economic developments in the country and provides an analysis of the macroeconomic outlook and risks to its economic recovery. But the reports do not just focus on macroeconomic issues. Every edition comes with a special focus chapter looking at a specific development issue. For this December edition, the report includes a special focus on public spending on agriculture in the context of Mandanas Ruling. We are honored that Senior Usec Domingo Panganiban from the Department of Agriculture is here to deliver a keynote speech on agriculture. Senior Usec Panganiban, thank you very much.
My WB colleagues Ralph Van Dorn and Anuja Kar will present the key findings of the PEU shortly. But please allow me to highlight some important points, as a primer, on the global economy, the outlook for the Philippines, and the challenge of increasing agriculture productivity.
First the Global Economy
We should indeed brace for headwinds because global growth is expected to decelerate sharply in 2023. This is due to heightened geopolitical tensions, supply-chain bottlenecks, and tightening global financial conditions. High inflation has triggered one of the most rapid and internationally synchronous episodes of monetary policy tightening of the past five decades. This has contributed to a significant worsening of global financial conditions, which in turn is leading to a substantial drag on global activity. This drag is unfortunately set to deepen given the lag between changes in monetary policy and its economic impacts, and the fact that real rates are expected to continue to increase.
The WB global forecast numbers for 2023 will be out in January. While the baseline is still a sharp global slowdown, there is a real risk that even moderate shocks can tilt the global economy into recession, which will have dire consequences to the growth recovery in many emerging and developing economies.
Against this backdrop, what is the outlook for the Philippines
The good news is that so far, strong domestic demand is propping growth in the Philippines, bringing renewed opportunities for income generation, and improvements in labor market outcomes. The impressive 7.6 percent growth in the third quarter was among the best performances in the region.
The bad news is that economic growth is expected to slow next year. This is because high domestic inflation is likely to slow household consumption growth, rising interest rates is likely to dampen investment and slower global growth could depress the export of demand-sensitive products such as electronics. Unfortunately, it will be difficult if not impossible to reduce inflation without slowing the economy in 2023.
But there is no fatality. Even in the context of global slowdown, foreign investments are being diversified geographically to balance efficiency and low cost with national security concerns and resilience. The PH can leverage its recent reform momentum to position itself well to capture more investments. There is a potential and an opportunity to scale up both FDI and export and harnessing this potential will be good for growth, the BOP and Jobs.
But beyond economic growth, what policy focus do we see as important for the Philippines?
By focusing on the headline growth numbers, we can easily miss three important facts: 1) there is considerable variation in the extent to which different people benefit from high GDP growth; 2) growth is happening in the context of very high food inflation; 3) the pandemic has already led to a worsening of child malnutrition and stunting, as well as significant learning losses among the poorest in the country.
If unmitigated, these shocks can have persistent impacts on people’s wellbeing and can damage their future productivity and earnings. It is therefore important to double down on monetary and non-monetary measures to address inflation while maintaining a sharp policy focus on health, education and agriculture to reduce the damage from the pandemic especially among the poor and most vulnerable and to prevent temporary shocks to have long-lasting impacts.
Finally, a few words on agriculture
The single most important way to assess agriculture performance is to look at ag productivity. Unfortunately, ag productivity growth has been low in the PH in absolute terms, and has been low compared to peers in the region. The slow growth in rice yields compared to rice exporters in the region is the main reason domestic production struggles to compete with imports.
The key question therefore is how do you increase agricultural productivity in the Philippines? There are many important factors. It’s a broad policy agenda. This report looks at one aspect of this agenda: the adequacy, efficiency and effectiveness of public spending on agriculture. It finds that the overall spending has been inadequate but also budget execution was low especially at the LGU level. So, the solution is not to just to increase spending, it’s also about helping LGUs effectively spending the budget. The report also looked at the adequacy of spending allocation across programs and found that key productivity-enhancing public goods such as farm-to-market roads, post-harvest facilities, research and extension services and irrigation have been consistently under-funded compared to commodity programs. Now we are encouraged that DA is trying to rebalancing, placing a stronger emphasis on these public goods.
Let me conclude by saying that finding ways to improve productivity in agriculture is absolutely essential to reducing poverty and food insecurity. Strong agriculture performance does not just reduce poverty and food insecurity in rural areas, it reduces poverty and food insecurity in urban areas as well and it enhances the competitiveness of all industries. It’s an accelerator of development. It makes food more affordable and increases the purchasing power and wellbeing of everyone.
We therefore are delighted for the opportunity to hear from our distinguished speakers and panelists on what it takes to raise agricultural productivity in the Philippines.
I look forward to an engaging and thought-provoking discussion.
Thank you very much for your kind attention.
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