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Ten economic issues to watch

This column continues to monitor many economic issues and developments. There are 10 topics tackled here.

1. Public debt has reached P14 trillion

Last week, the Bureau of the Treasury released fiscal data for October 2022. The budget deficit has reached P1.1 trillion, interest payment alone is P43.3 billion/month average and likely to reach P520 billion by end of this year. Total outstanding public debt has reached P14 trillion, actual plus guaranteed. The public debt has been rising by P2 trillion/year from 2020 to 2022 or three years straight, not a good fiscal condition. The debt should significantly decline starting next year. Control should be on the spending side by the national government.

2. Inflation has reached 8%, a 14-year high

Also last week, the Philippine Statistics Authority (PSA) reported that November inflation was 8%, a 14-year high. This is indeed high, but taking the average for 2022, we have a 5.6% inflation rate so far, lower than Thailand and Singapore which experienced deflation in 2020, slight inflation in 2021, and now are at 6% (see Table 2).

3. The Maharlika Wealth Fund (MWF) bill amendment

After a strong public outcry, the authors of the MWF bill in Congress have removed the inclusion of SSS (Social Security System) and GSIS (Government Service Insurance System) funds for the initial capitalization. Good. As argued in this column last week, “State assets should finance the Philippine sovereign wealth fund” — use of Malampaya gas royalties is a good source. If Malampaya funds are used, then no new tax or mandatory contributions would need to be slapped on the people. And the amount generated by Malampaya is huge: P26.57 billion in 2019, P19.08 billion in 2020, P19.79 billion in 2021, and P21.44 billion in January-October 2022 alone.

4. Tobacco smuggling as economic sabotage

Last week, Congress passed on second reading House Bill (HB) 3917 which seeks to amend Republic Act (RA) 10845 or the Anti-Agricultural Smuggling Act of 2016. It will include the smuggling of tobacco products, manufactured or raw, as economic sabotage and a non-bailable offense. The original law includes only the smuggling of rice, sugar, corn, pork, poultry, fish, garlic, onion, carrots, and some other vegetables as economic sabotage.

Party-list Congresswoman Margarita Nograles, as co-author of the bill, cited Euromonitor’s estimate that 16.7% of all cigarettes sold in the Philippines are from illicit trade and the projected revenue losses to government is P26.2 billion in 2022 alone. Notice also in Table 1 that excise tax collections, which include tobacco tax revenues, in 2022 remain low. As tax rates increase, illicit trade and tax evasion also increase.

5. MUP pension reform

The military and uniformed personnel (MUP) pension is among Philippine taxpayers’ burdens. The good news is that there are attempts to address this, like HB 2556, or the “MUP Insurance Fund Act,” filed by Deputy Speaker Ralph Recto. For 2022 alone, the government has obligated P153.1 billion, equivalent to 89% of MUP base pay for the same year. The bill proposes to establish a government-guaranteed insurance fund to cover new entrants to be managed by the GSIS, and agency contributions equivalent to 21% of the total monthly base pay of MUP.

6. A projected power rate hike

Consider these recent reports in BusinessWorld related to the Energy Regulatory Commission (ERC) ruling against the two San Miguel Corp. (SMC) power companies’ petition for a generation rate hike: “SMC Global Power appeals rate hike denial — ERC” (Nov. 25); “SMC Global Power points to ERC for looming rate hike” (Nov. 29); “SMC Global Power offers Ilijan capacity to Meralco” (Dec. 4); “Meralco gets CSP exemption for power supply deal” (Dec. 7); “Higher power rates seen on ceased 670-MW supply” (Dec. 8); “Malampaya consortium denies SMC Global Power’s claim on banked gas delivery” (Dec. 12); and, “Meralco hopes to secure power deal within the week” (Dec. 12).

SMC Global Power and its allies in media continue to demonize the ERC and the agency’s chairperson, Monalisa Dimalanta. There seems to be no acknowledgment by SMC that they made a big mistake in offering a low fixed-price power supply to Meralco which quickly defeated the bid prices of other power companies sometime in 2019 or 2020. Now SMC is turning its blame game on the Malampaya consortium — Prime Energy (the Razon group), UC38 (the Udenna/Dennis Uy group), and the Philippine National Oil Co. (PNOC, government) — for why it cannot get banked gas for its Ilijan gas plant in Batangas.

7. Continuing power deficiency, yellow alerts

Here are related recent reports, also in BusinessWorld: “Investigation looms after six power plants declare outages” (Nov. 28); “PHL energy security to hinge on emerging tech” (Nov. 30); “Luzon grid placed on yellow alert once more after five power plants report forced outages” (Dec. 1); “Red, yellow alerts raised over Visayas grid after four power plant outages” (Dec. 5); “DoE says working to make supply of power more reliable next year” (Dec. 6); and, “Meralco eyes US grant to look into small nuclear reactors” (Dec. 9).

Those yellow alerts can scare potential investors from coming in. Consider also the numbers in Table 2. The main reason why the Philippines’ power prices are high compared to many of its neighbors in East Asia is because it has very low power generation, with low supply relative to demand. And that also explains why many existing power plants tend to conk out more often – they are old and ageing, especially coal, gas, and big hydro plants — but they cannot be retired because new big power plants are few.

Aside from new coal and LNG (liquefied natural gas) plants that are coming soon, we need nuclear power — at least small modular reactors (SMRs) — especially for island provinces like Mindoro, Palawan, Masbate, etc. It is good that Meralco is pioneering this move.

I think the Philippines is wrong to focus on forcible low prices at the generation sector via a mandatory Competitive Selection Process. The country should focus on expanding its power supply and address the problems in the transmission sector like the absence of a firm contract for ancillary services by the transmission operator. If it does, prices will stabilize or decline on their own. From around 6 terawatt-hour (TWH)/year annual increase until 2021, we should have at least 9 to 10 TWH/year increase starting 2023.

8. Deaths increase but births decrease

Last week, the PSA also reported the country’s vital statistics. The worrying trend continues of “missing babies.” Among the possible reasons are couples’ continuing economic uncertainties after two years of lockdown, and possible adverse effects of mass vaccination on people’s fertility.

On causes of deaths, notice that deaths from heart diseases such as myocarditis, pericarditis, and related heart problems increased in 2021 and on until today, coinciding with mass vaccination. And there is a big decline in regular pneumonia deaths, from 10% of the total in 2019 to only 4.2% in 2021 and 4.5% in 2022. This implies that many pneumonia deaths are possibly tagged as COVID-19 deaths (see Table 3).

9. The Ruperto P. Alonzo lecture series

The UP School of Economics (UPSE) Program in Development Economics (PDE) Alumni Association has been revived. Elected as its new president is Senen Bacani, a former Education Undersecretary. Starting 2023, the association will organize a quarterly Ruperto P. Alonzo (RPA) lecture series, in honor of the long-time PDE Director, beloved by so many alumni, who passed away five years ago. Topics and speakers have been identified already for quarters 1 to 4 with a PDE alumni homecoming to be held in the second quarter.

10. The PPP Act

The first talk in the RPA lecture series will be held on Feb. 8, 2023 at the UPSE auditorium. It will be about Public-Private Partnership (PPP) and big infrastructure projects. The speaker will be Cynthia Hernandez, Executive Director of the PPP Center.

On this subject, Congress passed on second reading the bill on the “PPP Act.” I saw HB 2557 authored by Mr. Recto, and the provisions are good: automatic endorsement by the Regional Development Council for PPP projects which have complied with the requirements to avoid arbitrary delays, and the classification of infrastructure projects as “Projects of National Significance,” among others. And check again Table 1, local government units’ budgets will be rising — they should undertake more provincial PPP projects, and spare the National Government of more spending and borrowing.

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers.

minimalgovernment@gmail.com

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